Shopping for insurance? Ask these 4 questions

When shopping around for insurance you have to ask very specific questions to ensure you get what you require.

“Taking out insurance is not only an important step towards protecting your valuable assets, but also an integral part of sound financial management. Kickstarting the process and figuring out the industry jargon may be overwhelming at first, but advisers can play a key role in helping clients understand how to make their insurance work for them in the most effective ways possible,” Karen Rimmer, head of distribution at PSG Insure, says.

“From understanding the terms and conditions of a policy, to getting clarity on potential risk scenarios, advisers can fill knowledge gaps and help clients make informed decisions. Advisers are more than just product experts – they are equipped with the tools and expertise to help clients put the necessary safeguards in place to manage risk across several levels.”

If you are taking out insurance for the first time, you might wonder where to begin and Rimmer says there are four questions to start with: do you really need insurance, how can you make insurance affordable for yourself, how do you choose the best insurer and policy and what are the exclusions and what do they mean for you.

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#1: Do I really need insurance? 

Rimmer says it is no secret that insurance is often viewed as a ‘grudge purchase’ that involves paying money for an incident that has not happened yet and might never happen. However, she urges South Africans to adopt longer term thinking.

“As you grow in your career and personal life, you start to gather assets of value. A house is a good example. Owning property is not only something that people stand to benefit from in the present but also something that will continue to add value to their lives as they evolve.

“Buying a property is just the first of many necessary steps in building wealth and for that reason, its value as an asset must be protected. Risks to a home can come from multiple fronts, including natural disasters, such as storms, as well as accidents involving fire, which could lead to substantial damage or even the complete destruction of the property.”

In these unfortunate scenarios, the financial setback can be devastating and jeopardise the financial standing of any homeowner, forcing them to rebuild or reinvest in an asset that could otherwise have been recovered or restored, she says.

“Insurance provides a safety net and in a world that is so uncertain, it is one of the most effective ways to protect your financial future.”

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#2: How to make insurance affordable

One of the biggest misconceptions among newcomers to the world of insurance is that it is typically unaffordable and that the pricing of products is standard, Rimmer says, but then points out that on the contrary, insurance products are priced on a case-by case basis, considering an individual’s unique risk profile.

“One of the first things to discuss with your adviser is how insurance can be tailored to your needs and budget. Advisers are in the best position to source quotes from multiple insurers while comparing the terms and conditions they offer and can recommend which option provides the most comprehensive cover and value.”

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#3: How to choose best insurer and policy

Advisers play a pivotal role in helping clients choose an insurer that can provide the best products and services, she says. At the beginning of the process, they perform a needs analysis exercise that takes multiple factors into account, including your financial goals, the value of your current assets and which risks you must obtain cover for.

“Many clients make the mistake of opting for the cheapest premium, but as advisers often suggest, the lowest premium does not always offer the adequate amount or type of cover. There may be shortfalls in the cover that you must be aware of.”

Rimmer says making the right decision from the outset can save you a substantial amount of money, time, effort and valuable resources in the long term. Access to this kind of information is one of the biggest advantages of working with an insurance adviser, she points out.

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#4: What are exclusions?

“Every insurance policy includes certain risks that are excluded or deemed uninsurable and it is important that you are aware of what these exclusions are. For example, war and damage caused by nuclear substances would not be covered under a traditional insurance policy.”

Electrical damage caused by a potential grid failure is another risk that is not covered by most insurance policies, Rimmer warns. “The good news is that there are certain measures you can take to protect your assets against these ‘uninsurable’ risks from your side. Advisers can share guidance on steps that can be helpful, like installing surge protectors.”

Before agreeing to buy any insurance policy, you must ensure that you understand what the exclusions are and what to watch out for.

“Exclusions are just one example of a factor that you must understand properly about insurance. It is also important to ask your adviser to explain the policy wording as well as terminology, such as ‘duty of care, excess, coinsurance’ and ‘deductible’ before signing the contract.

“Doing this due diligence from the very beginning will ensure that your relationship with your insurer is built on a foundation of trust, reliability and transparency.”