Many people cancel their non-life insurance when under financial pressure. This can be risky, as it’s difficult to replace assets at their full market value in the event of an unforeseen loss.
In this article, we investigate the dangers of having no insurance, alternatives to cancelling a policy, and how to check that your assets are insured for their correct value.
Tip: Your vehicle, if you have one, is among your most valuable assets. Insure yours here.
Why it’s unwise to cancel a policy
Cancelling a policy is unwise in the current climate of escalating crime and poor law enforcement, says Christelle Colman, CEO and co-founder of Ami Underwriting Managers.
Load shedding is resulting in an increase in home invasions, as security measures and fencing are compromised, Colman notes. Car accidents are more frequent when streetlights are off, and power surges can damage electronic equipment.
As shown compellingly by recent natural disasters, floods, storms and fire-related incidents can place your assets at substantial risk.
In short, cancelling your insurance can leave you and your assets exposed.
“Aside from the fact that you could lose everything you own, you could incur significant financial loss,” says Wynand Van Vuuren, client experience partner at King Price. He points out that if your car is written off or stolen, you are still obliged to pay your car instalments.
“In addition, if you’re in an accident caused by a third party, you could end up paying for your own damages, as only three out of ten cars on our roads are insured. Those drivers are not able to pay for your repairs,” he warns.
Shop around for more affordable insurance
Insurers are feeling the pinch financially, which means there are a lot of insurers keen for more business. “Shop around for more affordable insurance – it will help you save on monthly premiums,” says Colman.
However, it’s important to ensure that your new policy still covers your specific needs and risks.
“It’s easy to find an insurer who will offer you a better deal, but don’t just opt for the cheapest premiums. There may be limitations or exclusions in your policy that prevent you from claiming,” warns Van Vuuren.
He notes that moving to another insurer will not affect your overall risk, as the length of time you have been with an insurer doesn’t necessarily count in your favour.
Colman highlights the fact that a good insurance record is one of your biggest assets. “Don’t use your policy as a way to manage your financial stress and make too many claims,” she says. “You could end up paying more and battling to get competitive quotes.”
Tips to save money
Colman and Van Vuuren offer the following tips as an alternative to cancelling a policy.
Consolidate your home and auto insurance. “Most insurers will give you a discount if you put everything on one policy,” Van Vuuren says.
Put all family cars on a single policy. “We offer a discount of up to 20% if, for example, you add your mom’s car and children’s cars to your policy,” says Van Vuuren.
Opt for a higher excess. Reducing your policy premium by opting for a higher excess payment is an option, notes Colman. She cautions, however, that this can be risky, as you will have to pay more upfront if you’re in an accident.
Don’t pay for what you don’t need. “Go through your schedule of insurance and itemise anything you don’t need, such as hail cover if you live in a part of the country where you’re not exposed to hail damage,” says Van Vuuren.
Insure for total loss. If you can’t afford comprehensive insurance, mitigate your risks with third-party, fire, and theft cover. “Liability cover is vital. It’s cheap, and it will prevent you from having to pay damages if you drive into a car worth R2 million, or damage a traffic light that costs R250,000 to replace,” Van Vuuren points out.
Make sure you are not under-insured. Being covered for the right amount is important. “If you are 20% underinsured, your insurer will settle only 80% of your claim,” Van Vuuren points out. He adds that the value of your cover needs to increase to keep pace with inflation. “You need to take the replacement value into consideration – what would it take to rebuild your house, or replace everything in your safe, for example?”
Improve your risk profile. Van Vuuren says you can reduce your premium if you take steps to become a lower risk to insurers. “You can install an alarm at home, which provides additional security, for example,” he says. “In addition, if you’re working from home and driving a lot less, there’s a lower risk of being in an accident on our roads.”
Understand security requirements. Most insurers have specific security requirements, owing to South Africa’s crime rate. However, if you are burgled during load shedding, your claim may not be paid. “If the power goes out, the onus is on you to have a backup battery for your alarm system,” warns Colman. He adds that this should be communicated to house sitters or Airbnb guests.
Hire a broker. The value of brokers is that they have clout with insurers, and can fight on your behalf at claim time, says Colman. “If a claim is in dispute, you fight on your own if you have direct insurance.”
Tip: If you need to cover vehicle-related costs in an emergency, consider taking out a personal loan. Find out more here.