Brian Joss – The effects of the national lockdown have already begun to show with many businesses either scaling back operations, or completely shutting their doors.
For personal consumers, the weakening economy also has serious consequences, with many reconsidering their monthly budgets.
“At this time many people are thinking about ways to cut costs. During and after the lockdown people are investigating ways to reduce or eliminate the cost of car and home insurance. Totally dispensing with insurance is a dangerous financial tactic, one that actually ends up costing more than saving money. Instead,” says Shaun Neuhoff, Managing Director of AA Insurance Supermarket, “look for ways to reduce costs rather than eliminate them”.
Shaun says there are several options available – each with pros and cons – should consumers consider them.
“But, cancelling your insurance policies wholly is not an option I’d advocate as this reduces the extent of your cover, and places you and your assets at great risk. Reducing costs does not have to mean cancelling policies; it’s not an all or nothing scenario,” he explains.
Shaun notes that if this is something you are thinking about you should consider that less than 35 percent of vehicles in South Africa are insured; an unbelievable 65 percent of vehicles aren’t insured. What this means is that if you are uninsured, you will have to rely on the other person’s insurance to cover you in the event of a crash, if the other person has insurance (and, given the numbers, this is unlikely).
“From a risk perspective, being uninsured means that you will have to pay out-of-pocket should the need arise. This may be a cost you cannot cover, and the repairs to your vehicle will not be done. Can you afford to take this chance,” asks Shaun.
He says rather consider some of the following options.
Firstly, AA Insurance Supermarket sources more than ten quotes on car and home insurance to match your requirements. AA Insurance Supermarket sources price competitive products that will assist you to save money without compromising the extent of the cover you have. As long as the extent of your cover remains the same, there should be no additional risk to you by changing to a cheaper insurer.
Secondly, if you need to reduce the cost of your car and home insurance beyond simply finding a cheaper insurer, you have a number of options. These are:
- Downgrading from fully comprehensive cover to a comprehensive product that offers reduced premiums for low mileage drivers. There are no obvious risks for the low mileage driver unless you must do a lot of mileage unexpectedly, in which case the premium will increase to pay for the ‘higher mileage’. This is an especially compelling option when many people are doing less travelling because of lockdown regulations, or working from home for extended period.
- Increasing your excess (first payment/co-payment) has the impact of reducing the monthly premium you pay, but places an additional financial burden on you when you claim. It should be noted that panel beaters will not start repairing your vehicle until an excess has been paid. This means that if the excess is higher than the amount of cash you have on hand, you will have to wait until you have the money before the repairs can begin.
- Downgrading your cover from so-called ‘Retail Value’ to ‘Market Value’ will reduce the premium but, as is the case with increasing the excess, you assume personal liability for the difference between the sum insured between these two values.
- Downgrading from fully comprehensive cover to a product that only pays for ‘total loss’ and third party claims. This applies if, for example, your vehicle is stolen and not recovered, or is written-off following a crash, fire or drowning. The significant risk with this option is that your policy will not cover any accident damage repairs. This may place you in a potentially severe financial situation where you may need to loan money, or dig into savings to get your car on the road again. The alternative is to just let the grass grow under it.
- Downgrading to a third party, fire and theft-type product. This type of product is cheaper than comprehensive cover but only covers the claims cost of the other person’s vehicle involved in a crash, unless your vehicle is stolen and not recovered or is damaged beyond repair in a fire.
- Cancelling part of your insurance, or all of it. For example, keeping one car insured and downgrading the cover on a second vehicle, or cancelling the cover on your home contents. In this option, the risks speak for themselves.
“These are all options to consider but it is important to stress that if your vehicle is financed, part of the condition of securing vehicle finance is that you undertook to take out – and keep in place – comprehensive car insurance. If you cancel the policy on a financed vehicle, the finance house is entitled to put a policy of their choosing in place and add the premium to your car repayment,” says Shaun.
He says it’s clear that times are tough on everyone, and that people will be reviewing their budgets to save as much as they can.
“But, insurance is not – as many believe – a luxury purchase. It is an essential financial tool which is aimed at protecting you financially should the need arise. It is, quite simply, not a luxury, but a necessity,” Shaun concludes.