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, and this agreement could be binding for a limited amount of time, or it could be 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 could be made better by making smart choices. In the case of car insurance, for example, these factors include:
- Your age;
- The value of the car;
- Your driving record;
- Where the car is parked;
- The security systems protecting that car.
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.