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What to Know Before Buying an Insurance Policy

Oct 21, 2020 | 9m

Gain Actionable Insights Into:

  • Buying insurance from a place of empowerment, knowledge, and value, not fear
  • Common traps that people fall into when choosing insurance policies
  • How to get the best value for money when buying car or life insurance
01

An Overview of Insurance

Nobody gets excited to buy insurance. We all do it for very different reasons but getting your insurance portfolio sorted is one of the key components of good financial planning. In fact, the best time to put your insurance policies in place is when you’re young and healthy! 

An insurance policy is the insurance company’s promise to pay not just if something bad were to happen but also to provide for your financial security later in life.  The risk may be tangible (such as a car) or intangible (such as life). Making a choice when buying insurance therefore is all about your protection needs, the level of self insurance you can afford in the event of the unforeseeable, and how much you trust the insurer and insurance intermediary. 

You might have an inkling that insurance is supposed to help you when things are bad, like if you fall ill or someone dies. But insurance is first and foremost a financial product that allows you to live your life and perform your activities without worrying about how you’ll cope financially with life’s uncertainties. 

Browsing through the internet and talking to your friends, you’ve probably realised  that you can insurance almost anything or any event. 

The two main types of insurance are general insurance  (travel, car, personal accident, pet, student, etc.) and health and life insurance (life, health, critical illness, ILP, etc.) An insurance intermediary’s role is to advise you of options that suit your personal needs, help you with your insurance application, service you during the period of insurance and at renewal. 

There are three main types of intermediaries:

  1. Captive insurance agents are employees of a particular insurance company, therefore they can only sell policies of that insurer.
  2. Independent Insurance agents can represent only three companies and sell their policies to you.
  3. Insurance brokers are not restricted to three principles, so they can access the entire market and sell multiple insurance companies' policies to you.

All agents and brokers earn a living through commissions paid by the respective insurance company against policy sales. You can choose to buy from a policy the insurer, an agent, or a broker. However, you should make sure that you’re making this choice knowledgeably.  

Insurer, Agent, or Broker?

Buying insurance directly from an insurer is possible and most insurance companies have a digital portal or call centre available to you. However, you’ll have to stay on top of your needs and proactively follow up on any changes you would need to make during the period of insurance. 

An insurance agent will offer you a personal touch during your purchase, from the period of insurance, to the time of claims and renewals. Agents spend time understanding your needs and sourcing the best options for your protection. Insurance agents may be incentivised to sell one insurers policies over another. Agents are particularly useful in the life and health segment to provide you with advice. 

Brokers and digital brokers on the other hand have consumer needs as a key driver for their business. Brokers can provide you with multiple options in the market, empower you to make the best choice for yourself and have less incentive to push one insurer's products over another. Digital brokers are particularly well placed to provide information in the GI space. 

Ultimately, insurance should be bought, not sold. Policy contracts can be difficult to read. But spend time understanding the contract you’re signing. If you’re not clear,  seek advice from an agent or one of the multiple online sources available. Take into consideration the benefits, exclusions and trade-offs especially when choosing lesser cover at low prices.

_“Selling on fear or price is the easy way out. It’s up to you to change your buying experience and make it a conversation about value. Demand the very best your money can buy. After all you are seeking protection for yourself and your loved ones.” _  

Common Traps

General insurance is often a grudging purchase because some of it is mandated by law. This is probably why most of us don’t pay as much attention when buying a policy which is necessary to meet our needs. Be it travel, home, or car, there are so many options and variables, exclusions and conditions that can lead to confusion. Below are a few traps you can avoid:

  • Underinsurance

Under-insuring is the wrong way to keep premiums low. For example, if your home and belongings are insured for less than the replacement value, you will not be fully compensated when you have a claim. There are better ways to save on premiums. Most often, you can select a higher excess to lower premiums or buy other policies from the same insurer.

  • Exclusions

Items you may expect to be covered may in fact be excluded. Read your policy carefully to identify exclusions when buying or renewing your policy. Ask your insurer, agent, or broker to help you understand the exclusions. Most online platforms also have a policy summary that will help you understand what you are covered for.

  • Buying inadequate cover

Using travel insurance as an example there are material differences in the level of cover provided depending on the policy you buy. As an example, for lost luggage there might be a cap on the number of pieces and value per piece. Ensure the cover is adequate for the value you want to insure.

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Thinkfluencers

Nelius Strydom

Chief Product Officer

Privé Technologies | Go Bear

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