The concept of insurance is not the easiest thing to grasp, the idea of paying for security and protection from some is not the norm. Meanwhile for others insurance is as essential as groceries. If you have ever lost something valuable you will know the cost to replace it. Some of our things have such high value that if we lost it we either could not afford to replace it or we would need to save for months if not years before getting a new one.
In this article we use the story of one of our clients to try and explain some of the basics of short term insurance.
Peter is a client of ours but his real name is not Peter.
Peter has many roles in life, he’s a husband, a father to a young boy, a photographer and an adventure fanatic. He grew up in a penniless household which taught him to work hard and live frugally. He was extremely driven to be more and followed his dream to become a photographer. With his work ethic and drive it did not take long for his business to flourish.
This boosted him financial which lead to bigger projects, upgraded camera equipment, a car and other business expenses. Peter had gone from a cell phone camera hobbyist in high school to fancy SLRs and drones. After having worked so hard and saving to pay for all of his ‘toys’, he needed to protect them. This is when he met us and wanted to talk about short term insurance.
So what is Short-Term Insurance?
Insurance can be broadly defined as the protection against a possible eventuality, you pay a fee and a company undertakes to compensate you for loss, damage, illness etc. Short-term Insurance focuses specifically on providing protection should something happen to your belongings. You, as a consumer, pay a premium to an insurance company and by doing so you are handing over the risk of having to self-funding the replacement or repair of your belongings.
Some items we choose to insure have such high value that we simply could not afford to replace it if something happened, like maybe your car. Insurance may also be so affordable that people will insure items even though they can afford to replace it. It seems odd but some people they don’t want to use their savings to replace their cell phone they would rather pay a few rands a month and if it breaks or is stolen they can replace it.
Back to Peter’s story and his camera equipment, short-term insurance allows him to ensure each camera, should he upgrade and get a new camera he can simply add the new camera onto his insurance.
Insurance, like many other things, you get what you pay for.
How does it work?
Insurance is payable by premiums (monthly or annually); these premiums are determined by calculating probability through the use of stats, risk factors and research. What this means is that insurance companies do their best to measure the probability of something happening and then they put a price on it.
Being a photographer for Peter means having no fear of putting his life in danger to ensure he gets “the shot”. About a month ago Peter went hiking on a quest to find waterfalls. Along the journey, he dropped his camera from a ledge into a plunge pool below. The camera was damaged beyond repair thankfully Peter had insurance and could claim for a new one.
Peter pays R110 a month to insure his camera valued at R20,000. On is insurance policy Peter had an excess of R500 on his camera this means that after his claim the insurance company paid out R19,500. Without insurance, he would have a lost a lot more than just a cool picture. Peter has not only insured his camera equipment but also his car, house and his household contents are all insured too. There are 4 buckets of personal insurance and Peter has made sure he is covered for each one.
Peter's Insurance Summary
4 Main Buckets of Insurance
Focused at property owners insuring that the physical structure of a building and the surrounding property is protected against the financial cost of repairing it. Something to take note of, if your house is bonded your building may our may not be insured with the bank you may be able to insure it at a better rate if you shop around. For Peter, his R2 400 000 house is costing R335 to insure.
This bucket looks at your household assets such as TV, fridge, furniture, electronics etc. These items remain in your house or on your property. Damage caused by fire or flooding as well as theft are some of the events covered by insurance. For Peter, insuring all the items inside is home is costing him only R366.
This bucket pertains to all valuable items which leave your home such as, your laptop, cell phone, bicycles, surfboards, clothing, jewellery etc. In Peter’s case, his primary insurance need was his camera equipment which is why he was able to claim from the hiking incident. He has more equipment but he only takes one camera out of the house at a time so he has cover for all of his camera’s but only one can leave the house at a time.
This bucket of insurance is focused on all vehicles – cars, motorbikes, scooters, caravan, boat, plane, Jet Ski etc. Since joining Growmatter Peter has purchased an additional vehicle. He now owns two vehicles one for himself and one for his wife, as well as, a motorbike. All of his vehicles are valued at R300 000 and is premium is R639. With the cost of cars nowadays we cannot afford to drive around without cover.
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The information provided is not intended to address the specific circumstances of an individual and is for information purposes. Should you require financial advice please contact us firstname.lastname@example.org