Think twice before cutting or cancelling your insurance

10 August 2006 Lange Strategic Communications

With interest rates having increased by a full 1.00% in the past three months and expected to rise further, petrol prices skyrocketing and inflation accelerating across a wide range of products, South African consumers are starting to feel the pinch after enjoying a long honeymoon period of rosy economic conditions.

Families incomes are being squeezed by higher bond- and car payments, and higher travel and food costs all essential items. As a result, many consumers are looking for ways to cut back on other types of spending, including insurance.

Yet this is one area where it is not wise to reduce your spending, according to Steffen Gilbert, CE of short-term insurer Santam.

"For most people the idea of skipping a few payments on their monthly household or car insurance premiums, reducing the amount of coverage in the policy, or canceling their policies altogether can be tempting," says Gilbert.

"They appear to be painless options for saving a bit of money. At first they may even seem to be among the most obvious and easiest solutions.

"However, experience has shown that this is not the case. This is because if you do skip a payment, your existing policy could be rendered invalid and you risk having no coverage whatsoever and left with some very expensive bills. At the same time, if your vehicle is damaged or your house broken into, and you are uninsured or underinsured it will be at a time when you can least afford it."

He also points out that, according to short-term insurance claims data, there has been an unfortunate upsurge in the incidence of certain crimes like carjacking and housebreaking in several areas of the country recently, which is normal in deteriorating economic conditions. This is another good reason not to lower your insurance coverage, he notes.

Gilbert advises that now is a good time in which to reassess your insurance coverage with a critical eye. This is particularly true for car insurance, which needs to be re-valued downward on an annual basis to take account of depreciation.

Policies covering house contents and car accessories should also be updated at least once a year to make sure they are all fully insured at replacement value.

Additionally, Gilbert says, relatively inexpensive adjustments like adding a car alarm or extra security to your home can have a larger impact on your premiums than you may realize.

"Always remember to speak to your broker if you take any protective measures in your home or with any of your possessions outside of the home. These measures will all help in saving you money on your premiums," He concludes.

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