The world of insurance can come across as complex and confusing, so you might be tempted to just avoid it all together. But it can also provide a huge amount of relief when life deals you a curveball, so it (literally!) pays to know the basics.
So how do you ensure that you have the correct cover to avoid financial disaster? Liezel Gordon, Client Engagement Team Lead at Metropolitan GetUp, believes that it is important to answer two simple questions: ‘why do I need insurance?’ and ‘what do I want to cover?’
Why do I need insurance?
Insurance protects us by making larger sums of money available when an unexpected event strikes, and so it’s “important to budget for it monthly, she says. “It is not only something for those who earn a great deal; in fact, it is a protection mechanism for everyone. Most people can cope on a month-to-month basis with everyday expenses, but if disaster suddenly strikes and you need access to a large sum of money that you don’t have, you have no option but to borrow it. And this generally comes with a high price tag in the form of interest – which tends to be charged at steeper rates when you need the money at short notice.”
In fact, Gordon says that not having insurance is often the reason why people fall into a debt spiral.
What do I want to cover?
You need insurance for three reasons, says Gordon: to protect yourself; to protect the people that you care about; and to protect your valuables. She goes on to unpack the different needs that insurance covers:
Insurance to protect yourself
Long-term insurance protects you and your family against big life-changing events, such as death, disability and illness. Not the happiest of thoughts acknowledges Gordon, but something that “will have a massive impact financially if not planned for it.
“For example, if you take care of elderly parents, there might be an expectation that you would also pay for their funeral should something happen to them. You would either need cash or funeral cover to pay for their burial. Should something happen to you, funeral cover will take care of the costs of your funeral while ensuring that your parents aren’t burdened financially,” she says.
Gordon says that typical products that could meet these needs would be funeral cover to pay for or contribute to a funeral; income protection cover to ensure that you can cover expenses should you lose your job; and disability or critical illness cover should you be unable to work and earn an income due to disability or sickness.
Insurance to protect the people who matter to you
Insurance to protect those you care for enables them to continue their current standard of living when you’re no longer there. Examples could be life insurance to pay off your home loan so that your partner and/or dependents can continue living in your home. “You might want to pay for your child’s schooling if you were no longer there or to leave a legacy for loved ones. Life cover makes this possible at an affordable monthly cost,” she adds.
Insurance to protect your valuables
Short-term insurance enables you to protect valuable possessions such as your house, car, cellphone or bike, for example. Things like travel and medical insurance are also included under short-term insurance.
“This type of insurance helps you to recover when your possessions have been damaged or stolen,” explains Gordon.
Gordon says that once you are ready to take out insurance, it’s important to stay committed because you are only covered for the months where you have paid your monthly premium. “If something happens in a particular month where you have not paid your premium, you will be extremely upset if you try to claim and find that the insurance company declines the claim as a result of a missed payment.
“If affordability is a problem, rather take less cover initially but make sure that you can afford your monthly premium, she advises. “Some companies offer payment relief measures for when you hit a financial crisis – but don’t assume this. Contact them to make arrangements if you cannot pay.”
Lastly, Gordon says that you should ensure that you understand the following in your insurance policy:
- Waiting periods – know how long waiting periods are so that you are clear on when your cover starts for accidental and natural causes.
- Exclusions – know what isn’t covered by your insurance. For example, accidents that occur during certain high-risk activities, such as skydiving, might not be covered.
- When cover no longer applies – there might be certain events or changes in your life that result in your cover no longer being active. Make sure you understand the terms of your policy so that you are not surprised at claim stage.
“Insurance is a lifesaver when the unexpected causes disaster in our lives. The trick is to ensure that you have the right kind insurance in place and that you understand all the basics to ensure it works for you,” says Gordon.
