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Good groundwork for short-term insurance






Bertus Visser, Chief Executive of Distribution at PSG Insure

Having adequate short-term insurance cover is an important part of ensuring that your younger loved ones are well taken care of. When they leave home, preparing your older child (or perhaps a younger sibling, or friend) for the adult world ahead will help them make sensible moves towards a healthy financial future.

These reminders are not only useful for your loved ones but also for you, to check that your own short-term insurance is on track, no matter how old you are.

A budget is best

Moving out of home or just generally going through adulthood successfully usually includes having a robust budget. Part of financial planning includes short-term insurance, and this doesn’t have to be a hard lesson to learn. It exists so that you can have a financial safety net when you need one. Although it is often optional and you may never use it, short-term insurance can really help to keep your plans on track, no matter what accidents or unexpected events lie ahead.

You’re only young once

Instilling the right short-term insurance principles into younger generations will help them develop good habits. Start by emphasising the importance of reviewing policy documents carefully, to understand how far your cover extends and what your responsibilities towards your insurer are. Steering clear of lying to an insurer is also essential. While insurance exists to protect your goods, it is up to you to manage your policy properly by being honest, adhering to your policy terms and conditions, and keeping up with premium payments. 

Be aware that insurers can detect false information and will always honour the wording of a policy. An example might be a parent who insures their student child’s vehicle. If the premium is based on the parent being the driver but it is then found that the child is the regular driver (who carries more risk and should be paying a higher premium), claims may be repudiated. A partial or zero pay-out due to underinsurance could become a financial disaster.

The principle of average is ageless

The principle of average is applied to calculate underinsurance, so it’s worth getting to grips with this concept early. Simply, if you state that your insurable goods are worth less than they really are, the percentage at which you are underinsured is the percentage at which you’ll be paid out if your claim is successful. So, in the case of the parent mentioned above, if the monthly premium should have been 50% more than what was paid, any claim pay-out will be 50% less than the real cost (because they are 50% underinsured). The reason for this is quite simply that it isn’t fair to expect more cover than what you pay for. 

When it comes to items in your home or the property itself, underinsurance can be a huge problem. Claims will be considered based on the current replacement values of items that may have been insured years ago. That’s why it’s essential to keep real-time replacement values of all items and assets (collectively) in mind, factoring in any new items you acquired after taking out your policy. The onus of keeping these values updated falls on you; pleading youthful innocence or ignorance at claim stage won’t make any difference.

Assets aging gracefully

‘Wear and tear’ is among the top reasons for a claim to be unsuccessful. If any repairs are needed at home, get them sorted as soon as you can to avoid unnecessary stumbling blocks down the line. Ignoring required maintenance for longer than you should will also only cost you more later. If you aren’t certain what your responsibilities in terms of your policy are, make sure you find out. Remember that being able to provide proof of what you own or have maintained at your property can help too.

When sharing these tips for short-term insurance savvy, you may stumble across some areas in your own policy you need to double check. Chat to your adviser as soon as possible and get your cover to the level you need it to be. It’s never too late to be successfully insured, but the sooner you start and keep this a constant, the better.

Source: Catherine Riley cdcom
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From The Glossary »


Underwriting Cycle:

The regular pattern of rising profits and increasing premiums and reduced profits (losses), and decreased premiums experienced in short-term insurance. The cycle starts when an insurer’s underwriting standards become more stringent and premiums increase. This happens once underwriting losses reach unacceptable levels.
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