Personal Policies: debunking the most common myths

Johannesburg - Despite the fact that having adequate insurance is a prudent part of personal and financial risk management, policies are often seen as ‘grudge purchases’ which can be cancelled in a bid to reduce one’s monthly expenses. Furthermore, when policies are purchased, opting for the lowest premium possible is often the instinctive choice for many. But, when disaster strikes, having the right kind and amount of cover can provide a much-needed buffer against potential financial devastation.

“There are also many misconceptions around how personal short-term insurance works and the role it plays in risk management,” explains Karen Rimmer, Head: Distribution at PSG Insure.  

“Many of these myths are linked to the fact that insurance consumers do not have a full understanding of what their policies cover, how they should claim in the event of an accident and how premiums are calculated. Fortunately, this is where the role of an adviser is crucial. By working closely with an adviser, clients can purchase insurance products that are within their means and that cover their unique risks.”

Insurance and liability – the risks of the road

One of the most common myths relating to vehicle insurance is that it is only needed by bad drivers. In fact, many South Africans opt not to take out cover on their vehicles for this reason, fueled by the belief that responsible driving practices will suffice in mitigating all possible risks on the road.

“No matter how responsibly you drive, accidents do happen, and vehicle insurance provides a safety net for when things go wrong,” says Rimmer. “Vehicle insurance can safeguard you against the high cost of a write-off or expensive damage after an accident if the responsible party does not have insurance. Cover extends to both the actions of the insured driver as well as other drivers on the road.”

Another myth around car insurance is that more expensive vehicles automatically cost more to insure and that premiums are determined primarily by the replacement value of the vehicle. In reality, premiums are determined by each individual’s risk profile, which includes aspects such as their age, their claims history, how they use the vehicle and where it is parked for most of the time. Factors such as the increasing cost of motor repairs and the import prices of parts for certain models are also taken into account by underwriters when setting premiums.

“Contrary to popular belief,” says Rimmer, “women do not always receive better premiums from insurers. While there is evidence to suggest that women are more responsible drivers, a number of factors affect the cost of the premium, including the risk of theft associated with particular models.”

Household risks and homeowners’ responsibility

Homeowners also fall prey to several common myths about what is and what is not covered by their policies. In this regard, it is important to note that insurance policies cover sudden and unforeseen events and for this reason, certain exclusions do apply. For example, damage or loss caused by damp and mildew or normal wear and tear would not be regarded as a sudden or unforeseen event and would not be covered by a homeowners’ policy, as this type of damage builds up over a period of time.

“Property such as jewellery that is stolen or damaged while in transit would also not be covered by a homeowners’ policy, as the cover is only granted while the assets are inside the insured property,” says Rimmer. “As part of an insurance policy, there are certain obligations that need to be fulfilled in terms of doing everything possible to prevent unnecessary incidents. Here, advisers play a vital role in helping homeowners to understand the steps they can take to protect their home and their belongings by having adequate insurance cover.”

All Risk policies – unpacked

All Risk insurance policies are regarded as being one of the most comprehensive policies that clients can have. And while All Risk cover does hold several key benefits for policyholders, clients also need to be fully aware of any exclusions which may apply. The main benefit of an All Risk policy is that you do not need to specify all the items (as well as their values) that you want insured, as they will be included in the cover for a lump sum.

“In other cases,” adds Rimmer, “clients might opt to add items to the All Risk sections of their existing policies, in which case they will be required to stipulate the specific assets they would like to cover under the policy, as well as their individual values.”

This kind of cover may also require specific valuable assets to be stored safely and securely when not in use. This could apply to items such as jewellery, which insurers may require be stored in a locked and secure safe. Advisers can provide helpful guidance and advice for policyholders on how to protect the assets they value the most and how to avoid being underinsured.

The role of the adviser

Another common insurance myth is that advisers do little more than sell insurance products. In reality, they are valuable partners who are capable of conducting individual needs analyses and helping clients understand what kind of cover will work best for their assets.

They can also provide recommendations on aspects such as the amount of excess to opt for and can help clients navigate some of the complexities involved with understanding policy conditions.

“Additionally, if affordability is a concern, advisers can also play a key role in helping clients prioritise their financial needs and situation, all the while giving them peace of mind that their hard-earned valuables are protected against unforeseen risks with sufficient cover,” concludes Rimmer.