Buying Insurance For The First Time

If you have just bought your first car or your first home, then you may also be buying insurance for the first time. That new car or new home will need insurance cover, as you would not want to be left without funds to repair or replace these precious assets in the event that they get damaged or destroyed.

When you’re buying insurance for the first time, things can get pretty confusing. The foundation of insurance is risk management: you want protection from an event in case it happens to you; the insurance company is willing to provide that protection under certain conditions and in exchange for a fee.

Some things you should remember to do when buying insurance include:

Obtain the insurance that fits your needs. It is your responsibility to assess your insurance needs. Only you can decide the amount of protection and the type of cover you want, so take time to ponder carefully what and how much cover best suits your personal situation.

Choose the coverage that adequately protects your assets. You know the value of your assets and how much it would mean to you if you were to lose them. Get an idea of what you can afford to lose, and make sure you are fully covered for any amount beyond that.

Select your method of buying. You have two basic options: using an insurance broker or going directly to the insurer. Going direct may result in lower costs, as the insurer saves on fees paid to the broker; however, the information you get is limited only to what the company says. Going through a broker may yield more information about many competing products and you benefit from the long experience of the broker; however, it may cost a bit more. Regardless of which method you use, remember to verify that the insurance broker and the insurance company (whether direct or not) should all be licensed. You can visit the Financial Services Board website (www.fsb.co.za) to verify these licences.

Look for a financially stable company. To be reasonably sure that the company will be around to settle a claim you might make, select one which has a solid financial rating. If you don’t have a broker, at least ask a friend for recommendations.

Shop around. Be aware that there is wide variation in prices among insurers for the same insurance cover (because their experience of risk is different), and the difference can run to several hundred rand in annual premiums. One rule to remember, especially since you’re buying insurance for the first time, is to shop around and compare insurance quotes.

Get the highest excess you can afford. Excess is that portion of a claim that you must pay first before the insurance company starts covering the rest. Getting a higher excess means you are willing to absorb a higher amount of risk. The insurer appreciates that and will reward you by imposing a lower premium.

Read and understand the policy before signing anything. The policy is a contract, so you must read it to know what your and insurer’s obligations are. It should have a Schedule, which specifies what your insurance cover consists of, and states the premiums and other information. Be alert on the exclusions, endorsements, and warranties. These are necessary statements of the premises under which insurance protection is extended by the insurer to you. Without them, the insurer would feel the risk is too great and will refuse to insure you.

Exclusions specify what item or event is excluded from the insurance. Endorsements are alterations to certain policy terms and conditions made to suit your specific situation by the insurer or upon your request. Warranties state that specified facts are true and correct or will be fully satisfied in the future.

If you could avoid purchasing insurance, you probably would. But you buy it anyway because some risks are just too difficult to take, e.g. the possibility that fire may raze your home. You need it, so you’ll just have to learn how to maximise the protection you get from your hard-earned money.