When I was a teenager (in the 70’s) I remember the Reverent having endless problems with a very relevant question for a teenager (at least in the 70’s): “How far can you go before it becomes sin?” This question related to relationships between boys and girls and sex. In my own 60’s I realize the best answer was always: “To be safe, try to stay away as far as possible.” Easier said than done when you are 16 years old!
The principle applies to short term insurance, too.
This post originates from an article I recently read that quotes the Ombud for Short Term insurance saying that insurers more and more rely on the Due Care Clause to repudiate claims. It reads something like this (taken from a typical policy wording):
You have a duty to take reasonable care to prevent or reduce loss, damage, bodily injury and accidents.
The Less…The More
Regular readers will remember me saying: The less you can afford the premium, the more you need the cover. In simple terms – I can afford the premium to insure my mobile phone (it is cashflow), but I cannot afford the cost to replace my cell phone (capital). I will have to save almost 10 years of premium before I have enough money to replace my phone.
Not A Savings Plan
The second thing you may remember, is me saying insurance is not a savings plan. A saving plan would be a savings account at the bank where you deposit regular amounts to afford maintenance or do repairs.
Insurance is a product where we all contribute a small amount (it does not feel small) so we all can benefit when we have a loss. But if you think you pay R558 per month to insure a R5 000 000 property, it sounds like a bargain. (Just an example based on circumstance of a specific client).
What About the Sin?
“What about the sin? I want to know about the sin!” I thought so, after all it is much more interesting than insurance!
Insure your assets for the correct value as closely as you can. That is good practice.
Then live as if you have NO insurance.
I see it all the time. Some people claim for the smallest amount. Others rarely claim. Perhaps they look after their possessions? Perhaps they do not sweat the small stuff. But when renewal time comes, this is the group who has lower premium increases. Over time it becomes almost impossible to find lower premiums for them at another company.
There is another group of insured people who claims a lot for almost anything they can. There I see increasing premiums. Some times special excesses, cancelled cover, exclusions or even cancelled policies. That is very bad, as it remains part of your history forever.
One underwriting question is: “Has ANY insurer EVER cancelled a policy or applied special conditions to a policy where you were an insured”
The problem is in that ever!
Conclusion
Insure everything you cannot live without or afford to replace.
Then live as if you have no insurance.
This is another case where prevention is much better than cure.