BEWARE INSURANCE PITFALLS
Do you pay out your insurance premiums every month without knowing exactly what you're paying for?
Do you have the uncomfortable feeling that you are not getting the most for your money or that your cover might have holes in it? If you do, you are one of thousands of consumers who risk running foul of frequently encountered insurance pitfalls.
Despite continuing improvements in insurance industry professionalism, errors in planning and provision are still common.
The good news, says Liberty Life, is that the most common errors are easy to spot and just as easy to correct.
Erica Stuart, from Liberty Life Risk Advisory Services, says this might be a good time to review your cover to ensure that your needs and those of your dependants are still being met.
But what are the most common mistakes and what can you do about them?
Stuart and other experts identified the following:
l Mistaken identity. People mistakenly identify their new car or new home as their most precious asset when the most valuable thing they have is their future earning potential.
If you have no income-producing assets and your family cannot support you, you are at risk without income protection.
Review your priorities and safeguard the things on which your lifestyle depends.
l Leaving dependants vulnerable. Life policy clients often provide for only half of current income in the event of death.
If all your earning power is needed to support your spouse and family, they face acute financial distress should you die, leaving them to live on "half pay".
Review, amend your policy.
l Ad hoc commitments. People sometimes make sporadic decisions and buy cover as individual items. The smart way to secure optimum life and risk provision is to draw up a proper financial plan, ensuring the 'biggest bang for your buck' without duplication. Strategic thinking pays.
l Mismatched cover. Your needs shape your cover. For example, a single person with no dependants and no debt may have little need for life cover.
Premiums might be better spent on income protection in the event of disability. When circumstances change, so should cover. Ensure current cover matches current needs.
l Cost-efficiency myopia. Sometimes we fail to spot opportunities for improved cost efficiency. For instance, the maximum benefit on disability cover is 75percent of earnings, yet some people pay for 100percent income cover.
Check your entitlements and ensure there is no discrepancy between what you want to achieve and the generic limits in a specific insurance category.
l Under-insuring your asset. This occurs when the current replacement value of the insured asset is higher than the amount of cover you specify.
It is unfortunate, but many people tend to under-insure their possessions in the desire to save on their insurance premiums.
Another reason why under-insurance happens is that people often forget to update their policies from time to time to ensure that the sum insured remains abreast with increased replacement values.
l Failing to disclose material facts. When you submit a proposal for insurance cover, the insurance company trusts that you have provided correct information.
On this basis, it calculates the corresponding premium. You also sign a warranty certifying that the facts you have provided are true and correct. If it should turn out that relevant information has not been disclosed or is not accurate, there is legal basis to reject the claim.
l Withholding information about previous claims. It is the policyholder's obligation to inform the insurer about all previous claims. This helps in evaluating the risk associated with providing insurance cover.
l Failing to take reasonable care. Having an insurance policy is not a licence to become careless about your use of the asset insured.
If you examine your policy, you will find terms in it that require you to take due and reasonable care. This is a standard stipulation in all insurance contracts.
You are supposed to take reasonable precautions to avoid incurring loss or damage to the asset.
For instance, you shouldn't leave your car keys in the vehicle, or leave cellphones or purchases lying on the car seats.