How do you buy short-term insurance? It’s not that complicated if you keep a few important things in mind.
There are two options. Buy directly from an insurance company – call them, go to their website, ask questions and get a quote. Buy indirectly through an expert like a broker, financial adviser or agent.
There is no right or wrong choice. You might go directly if you feel confident about making your own decisions. Or you might prefer someone knowledgeable to find you the best deal and help you claim or change your policy later.
Don’t assume you won’t pay commission if you go the direct route. The agent you deal with at the insurance company is still an agent and will get commission on what you buy.
Before you start, remember two things.
Honesty gets you the best policy, so never hide anything or lie about anything. It could make your claim invalid.
Know your rights:
- You have the right to deal with a company or a person licensed under the Financial Advisery and Intermediary Services Act. FAIS, for short, is your protection because it regulates the industry.
- You have the right to understand fully what you are buying, what is covered, what you will pay and by how much premiums will go up every year.
- It’s your right to know the full contact and business details of the insurance company or agent.
- You have the right to know exactly how to make a claim and where to complain.
- You can be late by an agreed number of days with your payment and not lose your cover - provided you don’t make a habit of it.
Got it? Good, but don’t make the call or click on the link yet. Work out the replacement value of everything you want to insure. It’s important to get it right – and here’s why.
Underinsurance will cost you. This is when your insurance is less than the total value of the covered items. It could be that you lied to get a lower premium (bad idea). It could be a mistake like insuring something for its market value instead of its replacement value – the cost of buying a similar item brand new. Or you might have forgotten to increase your insurance when you replaced an insured item – replacing your laptop with a bigger, more expensive one, for instance.
The outcome is the same. When you claim, the insurance company uses what is called the principle of average to pay out. For every item you will only get a percentage in line with the overall shortfall of your cover.
Over-insurance isn’t good either. Here you took out cover that is more than the replacement value of the insured items. Now you’ll probably pay a higher premium than you need to – and you get no extra cover for it.
Avoid both pitfalls buy reviewing your insurance once a year. Make sure you have the right type of cover at a competitive price. Shop around and compare – or ask your adviser to do it – if necessary.
Now you can start making the deal. The process goes something like this: When you apply, it’s likely you’ll get something called a proposal form. It asks what you want to insure and requires personal information. Make sure you declare all previous losses and claims you might have had.
The company accepts your form and issues a schedule. This document contains the details you provided. It also states how much you’ll be covered for and what your premiums will be. Check the details and ask questions until you understand everything on this form.
And if you only read fine print once in your life, let it be now.
To protect yourself even more, you can ask for a transcript of your phone conversations with an insurer – or at least a reference number.
Remember, it is your insurance. If you get your policy document and you’re not happy with any part of it, you have the right to cancel.
Your insurance kicks in under two conditions: The agreement has been finalised and the insurer has received the first premium within a stipulated time, or at the end of the month during which the cover becomes effective.
With the policy in place, you start paying premiums. Most people do it monthly by debit order. If you don’t pay by the due date, the insurer will send you a reminder. The policy will stand for a grace period of 15 days to a month. If you still haven’t paid, the policy is cancelled.
There are things you can do to reduce your premium. One is increasing the excess you’re willing to pay when you claim. The other is asking the insurer to recalculate your premium if you reduce their risk by beefing up your security.
A lot of insurers are competing for your business. Many offer rewards and incentives like discounts and cash-back bonuses. These might look good, but find out exactly what’s in it for you and how much you’ll end up paying for them.
You want an insurer that offers the extent and value of cover you want, charges a premium that is value for money and can be trusted to pay your claims promptly.
Finding that ideal insurer will be easier with help from an expert – someone who knows the industry and will understand what policy best suits your needs.
So talk to an Old Mutual adviser and get short-term insurance right.