Protect yourself with the right insurance

Insurance might seem like a waste of money if you keep paying for something that you might never use. What you need to consider when it comes to insurance is if you can afford to lose your item without it costing you a lot to replace it.

Think about your personal laptop or computer. These items are generally quite expensive and should they get stolen or break due to electricity surges (which is becoming more likely with load-shedding being back), you might not be able to replace them immediately because you don’t have that much cash lying around. And if you depend on these items to earn an income, being without them can be a real pain.

And although you might think (or hope) that nothing would happen to your belongings, life happens. Insurance should be part of your financial plan to ensure that you have a backup should the unthinkable happen.

What should you insure?

Generally, there are three important things that you need to insure:

  1. Your life.
  2. Your ability to earn an income.
  3. The roof over your head.

The above are the main things you should focus on when looking at insurance, as they are directly linked to your and your family’s livelihood. The important thing is that you are covered financially if something goes wrong.

But it’s important not to forget about the smaller stuff. Your phone is important for your job and keeping connected and can easily be stolen or damaged. Getting cellphone insurance is a good way to protect yourself.

How does it work?

Simply put, insurance is a pool of money that is collected from insurance clients and invested to accrue interest. Claims are paid out from this pool of money.

So how do insurers benefit? Well, insurers work on statistical assumptions around how many claims they will likely have to pay and, if necessary, reinsure parts of their book (or commitments to the pool of clients) with other insurers. This means that the fewer the claims or the lower the value of the claims, the more profitable they would be, and the more money will be available when you need to claim from your insurance.

Why you need insurance

How is your insurance premium calculated?

Your premiums are calculated based on your risk. This means that the higher the risk of what you’re insuring, the higher your premiums are likely to be.

For example, your premium for a car will be determined according to the condition the car is in, how much mileage it has, how old the car is, how often and how far you drive it and where it’s parked at night, among other things. However, if you have a car model that is statistically more likely to get stolen, your premiums will be higher.

Things like your age, gender and location will also play a role, as they statistically correlate with actual losses incurred. So, it’s not a one-size-fits-all solution and you’ll need to do your research thoroughly before you buy insurance.

What is the process?

  1. You choose the item(s) that you want to insure (identify the risk that you want to be covered for).
  2. The insurance company evaluates your risk profile based on the type and value of the asset (as well as the specific risks related to the item) and determines your monthly premium.
  3. You will then receive a quote from the insurance company based on their evaluation, stipulating your premium, the amount you want to insure (like the book value of your car), any excess that you might be responsible for, as well as any exclusions.
  4. If you accept the quote, you will enter into a contract with the insurer to pay an agreed-on monthly premium in exchange for cover should there be damages or loss of the insured item.

If you need to make a claim, the insurer will evaluate the claim, determine whether it’s covered by the policy, and then pay out the amount for the loss based on the policy criteria after you have paid an excess.

Insurance might seem like an unnecessary expense, but in the greater scheme of things it’s important for your financial health.

This information is for general information purposes only and is not legal advice.