• Editor

Want to cut costs? Why insurance isn’t where you should be skimping

Saving a few hundred Rand by cancelling your insurance is a dangerous game to play and according to Financial Adviser Ernest Zamisa, there is a better way.

In March 2020, South Africans thought they were in for a few short weeks of lockdown life as the country (and the world) quickly rid itself of COVID-19. Over a year down the line and we are still in lockdown - albeit with less restrictions - while grappling with an economy that is still reeling from the shock of the pandemic.

The last year has had a devastating effect on the personal financial situation of many South African households. In fact, the Momentum/Unisa 2020 Household Financial Wellness Insights report estimates the loss of gross income from South African households to be around R331bn.

How do we grapple with the financial pressures brought on by retrenchments, reduced incomes and general uncertainty plaguing our everyday lives? According to Financial Adviser at Momentum Ernest Zamisa, ‘coping' should not involve cancelling our insurance policies.

“It is our obligation as insurers and financial advisers to educate clients on the dangers of cancelling their cover, as it will leave them financially exposed,” says Zamisa.

Zamisa believes gambling with ones assets at a time of such instability is simply unadvisable. “You need to weigh up the risks and truly understand what you could financially endure should something happen.”

He says many South Africans often forget that being without cover affects their risk profile. “A break or gap in your cover will render you as a ‘high-risk’ policy holder because you failed to uphold the agreement terms with your insurer. This means the next time you apply for insurance, this break or lapse could negatively affect your future premiums, which could result in much higher rates.”

Zamisa believes that South Africans do not generally like to consider the ‘what if’ questions. He says this is proven by the fact that the South African Insurance Association (SAIA) found that approximately 70-80% of South African motorists are driving uninsured.

“With our roads being ranked as some of the most dangerous in the world, it seems illogical that so many drivers would forgo insurance on their vehicles,” says Zamisa.

“Comprehensive vehicle cover provides you with financial protection and peace of mind should your car be stolen, hijacked, or damaged in an accident. It also covers you for third party liability – where you may become liable for damaging someone else’s vehicle or injuring someone through an accident involving your vehicle.”

Before you consider cancelling your short-term insurance, Zamisa provides some alternate considerations to help reduce your monthly premiums:

  • Contact your financial adviser to see if you can reduce premiums as opposed to not paying or cancelling your policy

  • Ensure that all your asset descriptions are correctly noted

  • Update the asset values on your policy

  • Remove disposed/sold assets from your policy

  • Review your risk profile and decide which risks you can afford to bear yourself

  • Take an affordable excess

  • Review your insurer, broker, cover and premiums regularly – during trying times, insurers usually have various options available to assist clients

“By going through this checklist with your insurer, broker or financial adviser, you may benefit from decreased insurance premiums as a result of your profile update. It is important to be covered and protected in what is, perhaps, the most unpredictable time in our economic history,” says Zamisa.

As a financial adviser himself, Zamisa says that a qualified professional financial adviser can help you identify numerous areas where you can save money and stretch your Rands. “If you want to succeed, you need advice for success. Don’t be afraid to find a financial adviser to help you make sense of this challenging economic environment,” he concludes.