What is Short Term Insurance?

Having ownership of anything of value invariably comes with a variety of risks; with eventualities like theft, loss, damage and destruction immediately jumping to mind. As an owner, you can choose to move these risks to an outside party (the insurer). This means that in exchange for a sum of money (premium) that you pay to the insurer at regular predefined intervals, the insurer will offer you an agreed lump sum should any of the risks come to bear.

This is the basic premise of short term insurance.

What are the different short term insurance policy types?

There is a plethora of things you can insure today. In fact, you can insure just about anything if you are prepared to put money on the table: from your pet parrot to the possibility of retrenchment.

But these kinds of policies are not all that common. Instead, the majority of consumers spend their hard earned money on short term insurance policies that safeguard their homes, their belongings, and their cars.

Homeowners Insurance:

Homeowners policies cover the physical structure of your home as well as the fittings and fixtures contained therein against specified natural and non-natural disasters. This type of cover is invariably a condition of financing if you get approved for a home loan.

Household Insurance:

Household policies cover everything your house contains. High value items such as jewellery, certain antiques, Persian carpets etc. normally need to be specified on your policy and are likely to attract a somewhat higher rate than general contents.

Motor Vehicle Insurance:

Motor vehicle insurance comes in three flavours: 3rd Party; 3rd Party, Fire and Theft; and Comprehensive. If you finance your vehicle through a lender, this type of insurance is usually a condition of your financing being approved.

How are short term insurance premiums calculated?

The premiums you pay are based on an actuarial calculation that involves your personal set of circumstances as well as factors that are external to your personal circumstances. The latter will include deteriorating road infrastructure, crime levels, climatic changes, the relative experience of other drivers on the roads, frequency of accidents etc.

When assessing your personal circumstances, the insurer will consider the value of the asset, the type of asset, and you. For instance, if you want to insure your car, they will look at your gender, your age, your driving experience, your driving record and installed anti-theft devices, among other things. The reason for the scrutiny is that your profile will have a strong influence on the likelihood of risk they underwrite actually happening.

The greater the risk your profile poses, the higher your premium will be. This is a very good reason for you to be a responsible owner and to take all reasonable precautions to safeguard your asset.

Who sells short term insurance?

There are currently at least 105 short term insurers operating in South Africa, many of whom offer personal lines short term insurance. You can either buy directly from these insurers or from brokers. The advantage of using a broker, as opposed to buying from an insurer, is that a single broker normally represents multiple products from a wide variety of insurers, thereby enabling you to getter a better view of what is on offer.

When can claims be made against short term insurance policies?

You can lodge a claim against your short term insurance policy if an insured risk takes place. For instance, if you have homeowners insurance and your geyser bursts, you can file a claim for the geyser, the ceiling damage as well as the damage to your carpet. You may be required to pay two excesses in this instance: one for the geyser and one for the carpet and ceiling damage. An excess is a small, predefined amount of money you put down against the repair. The balance is paid by the insurer, provided that you are not under-insured.

Avoiding under-insurance is important. Make a point of checking your policies at least every three years to ensure that the cover you have taken out remains relevant.

How is a short term policy holder’s interests safeguarded?

Short term insurance is heavily regulated in South Africa. The insurers are required to comply with:

  • Short-Term Insurance Act (Act 53 of 1998 as amended)
  • Policy Holder Protection Rules (Short-term Insurance), 2004
  • Financial Advisory Intermediary Service Act (Act 37 of 2002)
  • Financial Services Ombud Schemes (Act 37 of 2004)

If you, as a short term policy holder, have any complaints, or feel dissatisfied with the handling of a claim, you are entitled by law to approach the Ombudsman for Short Term Insurance. The services rendered by the Ombudsman are free.