The true cost of cheap: Why cheap cover can cost young people more
In today’s challenging economic climate, young South Africans have become master budgeters. Squeezed by a high cost of living, inflation, and stagnant entry-level salaries, every monthly line item is heavily scrutinised.
When it comes to choosing car and home insurance, the temptation to accept the lowest price on a comparison website is entirely understandable. However, focusing solely on the monthly debit order creates a dangerous financial illusion, says Shweshwe Tlhapane, Chief Marketing Officer at Momentum Insure.
"While prioritising affordability makes sense on paper, choosing insurance based purely on the lowest premium often introduces hidden vulnerabilities," she explains. "When consumers buy car and home insurance based on price alone without looking at what is - and what is not - covered, they often lose critical protection. The result is that the cheapest option on day one can easily become the most expensive on day ninety."
The trade-offs of low-cost cover
The reality of the insurance industry is that a lower premium almost always comes with structural trade-offs. To offer an ultra-low monthly price, policies must reduce the insurer's risk exposure, which shifts the financial burden back onto the consumer in several ways:
• Inflated excesses: A cheaper monthly premium often hides an exceptionally high excess. If you have a R5,000 excess on a standard policy but choose a cheaper plan with a R15,000 excess, a minor vehicle accident could immediately plunge you into a cash-flow crisis at the claims stage.
• Aggressive exclusions: Low-cost policies often strip out essential cover items, such as car hire, or specific damages, classifying them as optional, paid add-ons.
• Strict claim limitations: Cheaper cover may include restrictive terms, such as adding additional excesses or imposing caps on the total payout amount for home contents.
"It’s important to understand the implications of any trade-offs you make when you sign up," Tlhapane notes. "An unexpected out-of-pocket expense defeats the purpose of having insurance in the first place."
Shifting from price to value
To build genuine financial resilience, she says, younger consumers must look beyond the premium and evaluate the suitability of their cover. “True value is not measured by what a policy costs when things are going well, but by how effectively it protects your financial stability when things go wrong.
She adds that instead of viewing insurance as a grudge purchase, it should be approached as a foundational asset that protects your future earning potential and hard-earned assets.
"We need to change how we evaluate risk," says Tlhapane. "Consumers need to play a proactive role in understanding their policy terms. Ask questions: What is my excess? What are the exclusions? Is this product tailored to my actual lifestyle?"
Taking the time to read the fine print or consulting with a financial adviser ensures you are making a balanced decision based on long-term protection rather than short-term savings. Real financial maturity means buying the quality of cover you actually need, ensuring that when life throws a curveball, your safety net holds firm.
