Our needs will change over time. We move, we change careers, we settle down and start a family, we buy new cars, etc. For this reason, we have short-term insurance. As our lives change, so does the need to protect ourselves from loss or damage. Because life comes at you fast.
We don’t want to end up shackled to one residence or one car until the end of our days. That kind of commitment is reserved for – you guessed it – long-term insurance. You buy a car, you insure it, and then one day you decide that a motorcycle would serve your lifestyle a lot better. So you sell the car, get a motorcycle and insure that. And so it goes.
Short-term insurance could therefore be classified as insurance that is taken out only for the period that you have need of it. Life insurance, by contrast – which is long-term – is something that you keep forever. It never changes, until you pass away.
Short-term insurance isn’t just limited to vehicles, though. It encompasses pretty much everything besides life insurance. This could include property, household, funeral, medical, travel, business or personal liability insurance. Let’s take a deeper look at how it all works.
Basically, the short-term option provides consumers with the opportunity to cover any financial risks to their material possessions. These are things such as your vehicle, your property, the things you own inside your house or even yourself. It’s an agreement between the insurance company and the policy holder. This agreement could be binding for a limited amount of time – or flexible – depending on your circumstances.
So, in the event of your possessions becoming damaged or stolen, your insurer will be there to make sure that you can get those possessions back. In return for this safety-net, so to speak, you pay a certain amount of money to the insurer every month. These are called premiums. The amount that you end up paying is worked out according to your individual risk profile. In turn, your risk profile is determined by a number of factors.
Some of these are completely out of your control, and some you could better by making smart choices. In the case of car insurance, for example, these factors include:
The greater your risk profile, the higher your premium will be. Therefore, it's also important to choose the right policy, in order to ensure that you have an adequate amount of coverage to suit your needs.
Sticking with car insurance as an example, let’s say you’ve selected the middle-tier Third Party, Fire and Theft policy. If your car is damaged in a fire, insurance will cover it. If, however, your tyre blows out on the highway and you smash into a barrier – insurance will not cover it. With the above-mentioned policy, you are uninsured for such an event, whereas with Comprehensive cover, you would be. So, that’s something to keep in mind.
So, we can gather from the above scenario that certain policies outline certain risks to be covered.
If you’ve covered yourself or your property from any possible loss or damage, then you won’t have any problems. When it's time to claim – say your car was damaged in the aforementioned fire – you’ll contact your insurer with all the relevant information and put a claim in.
In most cases, before that claim is met by the insurer, you’ll have to pay excess. Excess is essentially a small, predetermined amount of money which you need to pay toward the replacement of the damaged property. After the excess is paid, the balance will be met by the insurer.
There are various reasons why excess exists. First and foremost, it is to prevent fraudulent claims.
It is important that, as time goes by, your cover remains accurate. For instance, you will need to inform your insurer if you’ve moved to a new residence. Perhaps that new area is a higher risk and is known for frequent break-ins. If you’re under-insured for certain valuables or assets, the balance of the claim might not be settled.
Keep a flip file with all the receipts of your expensive items purchased. For things such as jewellery, you’ll need a valuation certificate and proof of purchase. Keep a complete and up-to-date inventory of your household contents. This will allow you to estimate the replacement value so that you can re-assess it every year.
This goes double for your property and the building. It's important to insure your property for what it will cost to rebuild – not just what you bought it for.
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