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Understand the dangerous risks inherent in insurance

There are a number of very important concepts that you must understand when purchasing insurance. If these aspects of insurance are ignored, YOU will not simply be wasting your money; you will be exposing yourself to even greater risk. First and foremost, the greatest danger by far is not taking out any insurance at all.

The rule of thumb is that if you can easily afford to replace an item of property, then insurance is unnecessary. It is however where the cost of replacing a property item such as a motor vehicle is massive, that insurance becomes critical for most consumers.

Insurance is primarily a risk sharing contractual relationship between the insurer and the insured. The insurance relationship assumes that the contractual partners manage the risk by taking all reasonable precautions to protect the insured property against loss.

For example, if you don’t keep your motor vehicle in good repair, such as having worn tires, the insurer will be entitled to refute a claim on the basis that you contributed to the loss in the event of a car accident. Another example would be having an accident while driving under the influence of alcohol or drugs.

The next problem is when consumers do not insure their property adequately and end up being under-insured.

The danger here is that at claim time when the value that is insured is less than the value of the loss experienced. Should you be found to be under-insured, the insurer will apply a formula that will reduce the amount paid out in the case of a claim by the percentage that you are underinsured.

There are many ways to save money on insurance premiums without cutting corners. The few cents you save today could cost you thousands of Rands in the future.

Another aspect of your insurance policy is the amount of risk you carry in terms of the excess payable in the event of a claim. The greater the excess, the more risk you carry.

Another common problem is not checking that your policy premium has been paid. The fact that the debit did not go through at the end of the month on your bank account, because of some unrelated reason, is not the problem of the insurer, it is YOUR problem. Although a short grace period is normal, most policies will lapse after this grace period and insurers will decline to pay claims filed after this.

 

{ 3 comments… read them below or add one }

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Adobe Web Premium CS4 October 11, 2011 at 12:01 pm

A good read and thoughtful insights in simple but great articles!

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