What is Short Term Insurance?
Table of Contents:
- What is Short Term Insurance?
- How Providers Calculate Short Term Insurance Premiums
- Short Term Insurance Excess
- No Claim Bonus
- Why You Need Short Term Insurance
We live in a time where insurance products have become crucial. It is vital to educate yourself on the different types and purposes of insurance. Short term is necessary if you want to ensure have protection in the event of loss or damage.
Examples of short term insurance will include property, household, vehicle, medical, personal liability, etc. The term “short-term insurance” will usually be applicable if the policy is for a need that will change over time. Unlike a long-term insurance product like life cover, the policy will only be applicable as long as you have a need for it.
This insurance option has allowed millions of people around the globe to cover the financial risks of material goods. This type of insurance will help replace your belongings possible lost due to damage, theft or loss.
With short term insurance, there will be no long-term binders. You can amend your policy as your needs change. For example, if you sell your insured vehicle, you can cancel the policy without any penalties. When you buy a new vehicle, you can simply reinstate the insurance policy covering the new vehicle. This type of insurance is simply an agreement between the user and provider. In most cases, if there is a loss, there will be compensation. Being compensated for the loss allows the consumer to replace the insured item.
Risk factors determine the cost of the policy. For example, if you drive an expensive vehicle with lots of horsepower, your premium will be more than a standard 4-door sedan. Your profile will help form the cost. There are various factors, for example, vehicle type, age, gender, history, etc. Most providers will even use the area where you park the car. Some policies will use anti-theft measures, and how often you drive it, etc.
Short Term Insurance Excess
The term excess applies to most short-term policies in South Africa. Excess is an amount sometimes payable when you claim against your policy. Most local providers have a fixed rate when it comes to excess. This clause must always be explained to the consumer when you negotiate your policy. For example, if the damage to your insured vehicle is R20 000, the first R2000 might fall upon the policyholder. The insurance company will settle the rest of the bill. This amount will usually be set regardless of the amount of damage. If the insured item sustains damage of R100 000, the excess will likely remain the same.
Excess is a term that applies to the insurance industry and comes into effect when you claim. You must pay an amount towards the replacement costs of an item. Most insurance plans have a fixed excess rate. A Fixed rate means when you claim on an item; you pay the first portion of the replacement or repair cost yourself. If your excess on a given item, like your car, is R2 000, and the repairs come to R10 000, you pay the first R 2 000, and the insurance company pays the rest.
There is a very practical reason for the insurance excess. Most providers want to prevent consumers from claiming at every possible opportunity. So if the damage is less than the excess, the consumer will most likely not claim from the policy.
No Claim Bonus
There is often a “No Claim Bonus” to prevent unnecessary claims. It is the amount paid back to the customer for not making claims for a specified period. It can either be a lump sum paid back directly to the consumer or discounts on premiums.
There are often different types of excess for different parts of the policy. For example, for accidental damage, it might be R2000 but for theft, it might be R1000. It will be specified in your policy wording. Nowadays, you can even apply for a separate policy just to cover your excess amounts. It is usually a very small premium and a good idea if you have high excess amounts.
For a small additional premium, some short term insurance companies will waive the excess completely.
The more you accrue assets, valuables and other expensive toys, the higher your risk for loss will become. In our society, it is important to safeguard your belongings at all times. Handing over your risks to a trusted insurance provider can be infinitely valuable.
Often people become stranded due to unforeseen risks. Make sure that you do not become part of this statistic.
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