Conscious cost cutting: What to consider before you skimp on insurance
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By: Serapelo Mofokeng
Between lockdowns and lootings, the past 18 months have been financially challenging for South Africans, many of whom have had to look at new ways to cut costs thanks to the adverse effects of the economic climate. With budgets under strain, some have opted to forego their insurance policies altogether to minimise monthly expenses, thus leaving themselves vulnerable and financially exposed.
While some might see this as a quick and easy way to save money, the repercussions of such a decision can in fact have dire consequences down the line, particularly for those who already find themselves in a precarious financial position.
Certain expenses can certainly be deemed extravagant in the midst of a pandemic, insurance has never been more important, particularly given the volatility of the current situation. Before trading in your cover for reduced monthly costs, here are a few key pointers to consider:
Relook your excess options
If you're looking for a way to save without compromising on your cover, speak to your insurer about your excess options. By increasing your excess payable, you'll be able to lower your monthly premiums, thus enabling you to minimise the dent made in your monthly income. However, it's important to understand the implications thereof and to be sure that you're in a position to cover the higher excess payments in the event of an unexpected accident. Remember too that you can always choose to revise your excess payable at a later stage should your financial situation improve.
Negotiate your premiums
You might also be eligible for slightly lower premiums if your lifestyle has undergone significant changes since the onset of the pandemic. For instance, if you're no longer driving to the office every day, you might be able to negotiate a lower monthly premium given your minimised risk exposure. Additionally, you might want to opt for a slightly different level of cover, rather than jumping ship altogether. Here are a few of the different package options to consider:
- Comprehensive’ insurance cover provides the widest cover and protects you against everything from theft and hijacking to natural disasters like hail and floods. Comprehensive insurance cover also includes damage to the vehicle’s windows and liability to other parties as a result of an accident, as well as intentional damage to your vehicle.
- Third-Party, Fire and Theft cover provides insurance cover for your car against theft, fire-related damages, and any damages you might cause to another person's vehicle during an accident.
- Third-Party Only insurance cover provides liability cover for any damage you may cause to the property of another person. Damage or loss to your own vehicle is not covered in this scenario.
Total Loss provides insurance cover for the total loss of your vehicle only due to write-offs, theft or hijackings, where the vehicle is not recovered, as well as limited third-party liability. Remember however that accidental damage that does not result in a total loss is not covered.
Before defaulting on monthly payments, contact your insurer. It's important to remember that if you miss a payment, you may not be covered for the period in question, which puts you at serious risk should you be involved in an accident or suffer any serious financial loss. In certain cases, failure to pay may even result in your policy being cancelled. As such, it's vital that you communicate any potential late payments upfront to your insurer so as to avoid unexpected costs that you aren't able to cover.
Consider your credit shortfall
If you're financing a new vehicle, it's likely that you've been advised to take out credit shortfall insurance. Essentially, the second your car leaves the showroom floor, it immediately loses value, but the amount owing to the bank remains unchanged, which is why this type of insurance is recommended to bridge the gap between the insured value and the actual price tag. However, at a certain point, the amount owing to the bank will be inferior to the insured value of the vehicle, making it essentially redundant. As such, if you have this type of cover in place, you might be able to cut back on costs, depending on how far you are in your payment cycle.
While you might justify your decision to forego your insurance policy based on your impeccable driving conduct, it's important to remember that in the event of an accident caused by another uninsured driver, you aren't guaranteed to have your costs covered. Irrespective of who might be at fault, you could find yourself fully responsible for repairs should the guilty party be incapable of footing the bill. If you were you to find yourself in a similar scenario with an insurance policy in place, you'd only be liable to cover the excess, which your insurer would then attempt to recoup.
Before exposing yourself to risk and foregoing your long-term financial security for short-term gains, consider all the options available to you and remember that life has a way of getting in the way when you least expect it.
Serapelo Mofokeng is the Head of Client Services at MiWay Insurance