Why cheap insurance isn’t always the best

Angelique Ruzicka talks to two insurance experts about how you can get the right budget cover to suit your needs without sacrificing on benefits.

With costs increasing you’ve probably looked at all your household expenses to see where you can cut back and save money. Car and home insurance is often an area where consumers tend to cut back, but if you are shopping around for cheaper quotes you have to be sure that you are also getting a good deal.

“Cheap car and home insurance rarely translates to ‘best insurance’.  Minimal price often means minimal insurance cover, which gives you minimal protection,” warns Peter Olyott, managing director of Indwe Risk Services.

Budget cover can be enticing
Insurers, particularly those operating in the direct market, are well aware that consumers like you are looking to cut back on costs. That’s why they are advertising low prices with decreasing annual premiums. Some companies, like OUTsurance promise you cashback if they can’t beat your existing premium or quote.
At first glance these offers may appear to offer you some financial relief, but if you look at your terms and conditions you may find that you aren’t getting a better deal in the long run.

“The reality may be that you have simply purchased a low amount of insurance cover,” cautions Olyott, “which could result in you not having enough to cover an accident and land you with a huge, and unwelcome, bill for the costs your insurance won’t cover.”

Christelle Fourie, managing director of specialist insurer MUA Insurance Acceptances says that the general rule of thumb is that if you pay less in premiums you generally sacrifice on benefits. “Normal policies may offer you specific cover whereas the more expensive policies may offer you all risk insurance,” she says.

Fourie points out that direct players’ cover may be more restrictive. “They may impose exclusions and only provide cover if the car is driven by you. Your car may not be covered if you don’t park it in a secured area or you may pay more excess when you claim.”

How to get the right budget cover
“There’s nothing wrong with looking for low-cost car insurance, and if you don’t want to lose vital cover, look for discounts available to you,” advises Olyott.

The best way to get the budget cover to suit your needs is to shop around. However, before you set on this mission you should write down which benefits you are not prepared to sacrifice on and ask the insurer or broker that you approach whether these benefits will be available under your new policy. If they’re not, move onto another insurer or broker until you get what you want. And if you don’t have the time to shop around instruct a broker to do it on your behalf.

Another way to cut your insurance costs is to increase your deductibles. It will certainly reduce your monthly premium by a little bit, but it will also increase the cost of claiming.  By saving yourself a few rand each month, you’re exposing yourself to the risk of having to pay out as much as R2 000, up front, when you file a comprehensive claim – all of a sudden that saving won’t seem worth it at all.

Increasing the security features on your car could also save you in premiums. “Some insurance companies offer you discounts if you install a tracking or telematics device,” says Fourie.

If you can create a lift club you could save on premiums too as some insurers offer you a ‘pay as you drive’ policy. But be careful about how you operate your lift club. If the person doing most of the driving is operating at a profit then your insurer may not cover you. “If the person doing most of the driving is asking for money to pay for general costs and not operating at a profit then insurers won’t see them as operating a business. However, if they find out at claim time that they are making a profit they may not award the claim,” explains Fourie.

Making small changes in your daily routine can also help you save on your premium. “Where you park your car has a big impact on premiums. Make arrangements to ensure your car is parked securely,” advises Fourie.

Finally, you can save on your premium by not submitting a claim for every minor scratch and dent. “Don’t submit low claims as you will sacrifice your no claims bonus. Ask your broker or insurer how your premiums will be impacted if you submit a claim. Insurance companies don’t like it if you are a frequent claimer. Protect your insurance record like you do your credit record,” says Fourie.