BEWARE THE PITFALLS OF LOW PREMIUM-HIGH EXCESS INSURANCE Without provisioning for the excess, you could find yourself in a financial bind 2020 isn’t coming up roses in the economy department and all indicators point to a tough year for consumers. In tough times, looking for ways to cut back, save, and make your money work harder for you, is always a good idea. But in doing so, don’t fall into the trap of cutting back on your essential insurance cover to the point that you will be left financially compromised if things go wrong and you need to claim. “One of the ways many people look to cut back on the cost of motor and household insurance is to opt for ‘lower-premium higher-excess” cover. Insurers have traditionally provided the option of increasing an excess payment – the first amount payable that you are liable for in the event of a claim – in return for lower monthly insurance premiums. However, a high excess payment can leave you in dire financial straits if you have not provisioned for it – few consumers make this provision, and those cheaper premiums soon come back to bite them.” Says Mutoda Mahamba, CEO of Solvency. While the merits of accepting more of the risk (a higher excess) in return for lower premiums is sound practice, accepting such risk if you don’t have the financial means to manage the fallout is not, since a major loss could push you into extreme financial difficulty. Instead, Solvencyenables you to bridge this gap and provides a seamless way for your car and household insurance premiums – which you’ll be paying anyway – to be used to create an investment for you. Solvency lets you decide what percentage of your monthly car or household insurance premium percentage – up to an average of 45% – goes to savings, based on the excess you are prepared and able to pay. This provides a savings solution for you known as an Insurance Savings Account (ISA), which you can use to partially or wholly fund any excess should you ever need to claim. Furthermore, the savings in the ISA also earns money market-related interest projected to be approximately 5%. You can withdraw in cash up to 50% of your savings in 12 months, or better still, leave the savings invested to grow and earn interest. The bottom line is that the money in the ISA is 100% yours, instead of going directly to insurer profits if you don’t claim. Here’s an example of how it works: Consider a 32-year-old married female who lives in Kyalami (Johannesburg), drives a FIAT 500 900T, used for personal use, has a tracking device installed and the vehicle is parked behind a locked gate at night: OptionFixed ExcessTraditional InsuranceSolvency*PremiumAnnual Savings*PremiumAnnual SavingsAR3,000R1,265R0R1, 265R0BR4,000R1,177R0R1,265R1,060CR6,000R1000R0R1, 265R3,180DR8,000R823R0R1, 265R5,300ER10,000R687R0R1, 265R6,930 *indicative premium; actual premium based on risk profile Even with a R4000 excess which is standard with most insurers, Solvency enables you to save up to R1,060 in a year. Even on the maximum excess of R10000, your Solvency premium stays steady at R1,265, however R6,930 of your premium goes into your Insurance Savings Account each year. Considering that statistically, the average insured person only claims once every four years, for an average amount of R18 000, the benefit of Solvency’s model for consumers is loud and clear. On an average insurance premium of R1 000 per month taking escalations into consideration, you will pay approximately R50 000 in premiums over four years. If you don’t claim during this time, you will have paid R50 000 for no return whatsoever. Even if you claimed for an average of R18 000, that leaves R32 000 that provides no dividends for you whatsoever. Our lifestyles, environment, and technology have evolved tremendously over the last few years, and so should our approach to financial planning. There are better ways of insuring assets than has traditionally been the case. It should be every consumer’s resolution to look for new, innovative ways of making their money work harder for them and deliver better returns without undue risk. Take full control of what you spend on insurance and savings, and then invest those savings in an interest-earning account in your name. The next time you consider increasing your excess to lower your premium, you might want to consider a solution that lets you invest as you increase your excess. For more information go to www.solvency.co.za Solvency is a product underwritten by GENRIC Insurance Company Limited, an authorised financial Services provider and registered short-term insurer (FSP 43638). Leave a Reply Cancel ReplyYou must be logged in to post a comment.