Check the terms of your insurance policies to avoid nasty surprises

Now that the worst of the recession is behind us, it is even more important that you review your short-term insurance policies regularly, because you face receiving only a partial payout or having your claim rejected if your policy is not up to date with, for example, the insured value of your possessions.

Debbie Barret, the general manager of marketing at First National Bank (FNB) Insurance Brokers, says many consumers are still under pressure following the recession and "may be tempted into false economies by failing to review their policies".

To guard against costly surprises, FNB Insurance Brokers advises that you review your policies and pay particular attention to any restrictions and exclusions. Barret says the "grey areas" include:

Personal belongings. Barret says under-insurance is a major problem. You should regularly review your policies and the value of your insured items to take account of inflation.

For example, if you bought a TV set five years ago for R3 000, a similar replacement today would cost far more than R3 000, and you need to update your cover accordingly. If you fail to do this, you risk a partial settlement of your claim. For example, if you took out cover for R250 000 on your personal possessions and the insurer finds that your possessions were actually worth R500 000, the insurer is likely to apply the rule of average and will pay you only 50 percent of your claim.

You should do an annual inventory of your insured items - your insurer can refer you to a valuer for this purpose and, in some cases, your insurer will pay the valuer's costs.


All-risks cover. This cover applies to personal portable items. You may assume that cover for such items is included automatically in your household contents insurance. However, you should specify expensive items, such as laptop computers and cellphones, under your all-risks cover, because the maximum all-risk amount may not be sufficient to cover the replacement cost of the individual items. You should also specify your jewellery and expensive branded goods, such as designer handbags.


Home damage. Full homeowner's insurance is far from automatic. You have a duty to ensure that you maintain your property. For example, if you fail to maintain your roof and allow your gutters and down-pipes to clog up, a claim for rainwater damage may be repudiated.


Car value. You should check the value for which your vehicle is insured. If it is insured for market value, the insured amount should decrease each year as your car's market value decreases and your premiums may increase less dramatically. Your insurer will increase your premiums to a certain extent to cover the contingency of a motor vehicle accident where your car needs to be repaired.

If your car is insured for its replacement value, the insured value is unlikely to decrease each year but will be adjusted by the insurer for inflation.


Car hire. In terms of your policy, free car hire may be available following an accident, theft or hijacking, but there may be exclusions or restrictions. For example, you may have free car hire only if you use a particular car hire company or you may be restricted to only five days of free hire. So, you may not have the blanket cover you assumed.

NOT TAKING COVER CAN LEAD TO RUIN FOR SENIOR CITIZENS
Senior citizens on fixed incomes who have been hard hit by the low interest rates of the past two years are reducing and, in some cases, cancelling their short-term insurance to save costs.

But the consequences of dispensing with insurance can be disastrous for pensioners, Debbie Barret, the general marketing manager for First National Bank Insurance Brokers, says.

She says senior citizens may face huge claims to cover their third-party or personal liability exposure, which could ruin them financially. Third-party insurance refers to cover for any claims made by a person other than the person whose property you damage. For example, if you are involved in a car accident where you are at fault, you may be liable for the damage to the other driver's car, as well as for any injuries sustained by the occupants of the other car.

Third-party insurance is not restricted to car insurance. Personal liability insurance covers you for instances when you may be held personally liable to pay compensation because your negligence or that of a member of your household resulted in accidental damage to someone else's property or in personal injury or death.

Barret says it is important to be aware of the following if you are considering self-insurance:

Self-insurance is most appropriate for high-net-worth individuals who have cash reserves and the discipline not to spend their emergency funds. "Self-insurance for the average consumer is apt to degenerate over time and become non-existent, leaving you exposed to dire financial risk," she says.


If you believe that you can make self-insurance work, you should make sure that you have sufficient funds to cover any third-party and personal liability claims against you, because such claims can run into millions of rands.


Older people sometimes qualify for reduced premiums, because they constitute a lower risk as a result of their experience and more prudent lifestyles.


You and your broker should regularly review your insurance needs to ensure that you have the appropriate level of cover in place. This applies not only when you have accumulated more possessions but also if you have downsized.

Barret says while disciplined and prudent older people are less exposed to certain risks than are young people, in some respects they are more vulnerable. For example, she says, a younger person who earns a salary may be able to replace his or her losses, whereas a pensioner who relies on a fixed monthly income often lacks the financial resources to make good a major loss.

Please contact Bestsure on 0861 10 12 20 to make sure you are correctly insured.

Resource : Personal Finance

Geyser Insurance

The geyser has become one of the biggest challenges for insurers, underwriting managers and trustees wishing to manage their premiums. We are told that roughly 70% of all claims are geyser related – in other words, repairs, replacement and damage resulting from leaking or burst geysers.

So, how does this affect the owner? How does this affect the trustee?

A lot. An insurer, like any person in business, needs to make a profit. This means that a claim ratio of 60% is more or less the break-even point. Does this sound like gobbledygook? Let’s put it more simply. For every R100 of premium received, the insurer cannot afford to pay out more than R60 in claims on average. This is usually viewed over a historically averaged three-year period.

Take an average building of 30 apartments. The body corporate would normally pay about R2,000 per month on premiums, or R24,000 per annum. The average geyser costs about R6,000 to replace. Throw in a bit of resulting water damage, and the claim can rise to R10,000 or beyond. Three claims like this in a year (or R30,000 in claims versus R24,000 in premium income) equals a 125% claims ratio. What does this tell us? Well, it is simple mathematics. To achieve a 60% claims ratio, assuming the above scenario to be the trend, the insurer would have to double premiums. This answers the question: double the premium and everyone’s levy contribution goes up roughly R800 per annum each.

There is, of course, also the question of what constitutes a “burst geyser”.

“Bursting” can be defined as “to break or cause to break open or apart suddenly and noisily, especially from internal pressure; explode”. Let’s face it: geysers do not usually explode or burst. They corrode and eventually give in. Simple wear and tear and corrosion are sped up by lack of maintenance – this is the stark reality.

Lack of maintenance? How so?

In non-technical terms, geysers are manufactured out of steel and are glazed inside so that the steel and water do not meet and start the process of corrosion (or rusting). Geysers come off the factory assembly floor and are immediately transported about, to the retailer, in the plumber’s van, before they are finally installed. Along the way, the geyser is bumped and knocked. You can imagine all the glazing chips and imperfections by the time the geyser is finally installed. So, bearing this in mind, rust now starts forming where there is no protective glazed area. Geyser manufacturers thus also install a manganese rod called a “sacrificial anode”. This removable rod performs a specific job through a natural process of decay until it is shed or worn away. It may take 12 to 18 months until this anode needs replacement. The rod’s residue is transferred to the exposed chipped parts, effectively “coating the chips” and thereby preventing or minimising decay. Thus, if after 18 months there is nothing left of the anode, the geyser speeds up its internal decay process, and within 36 months or so, the decay causes serious malfunctions and a new geyser is required. This is what the experts tell me.

Does this sound like an insurable event?

Insurers have been paying these claims and have simply tried to “price it in”. If a plumber replaces a geyser and tells the insurer that it was a burst geyser, who can argue? An assessor, yes. But at what further cost? An extra R2,000?

Let’s take a look at what the rules say.

On one hand, rule 29 says, among other things, that the geyser must be insured to full replacement cost against bursting, subject to the trustees’ negotiation of excess premium and rate. On the other hand, rule 68 says that the owner is responsible for her geyser’s maintenance, even if it is located in the common area somewhere. So, the body corporate must insure the geyser against insurable events but the owner must maintain the geyser. There can be no arguing about that – provided that prescribed or standard rules apply.

Insurance policies are structured in different ways in an attempt to manage this high-risk area. Some policies work on a sliding scale basis – the older the geyser, the higher the excess. Others offer full geyser cover for a certain amount per month per geyser. Some offer a maintenance plan to take control of the unnecessary replacements that occur, and so on.

If trustees are concerned about non-burstings (in other words, unmaintained old geysers that cause much higher premiums and result in a watered-down insurance cover), the trustees can instead self-impose excesses. In other words, trustees can usually negotiate with the insurer for a lower rate where higher excesses are applied for geysers. A R4,000 excess on a geyser (where it may have been R1,000) may radically improve the claims ratio and lower the rate or premium achieved. This is where I would say that the trustees are acting in the best interest of all the owners, because they are negotiating the most appropriate terms and rates for the body corporate so that premiums remain reasonable and sustainable for all owners.

The ideal scenario is that owners work together and arrange for a plumber or a specialist service provider to change anodes and check geysers for faulty valves, for example, on a regular scheduled basis. By doing this, they are maintaining their geysers and reducing costs all round. This is the challenge.

Rules may need to be tweaked to allow them to be easily amended, so that the body corporate can take charge of geyser maintenance in certain circumstances. A complex with all geysers situated outside on common property can more easily be maintained by the body corporate, rather than when 30 owners must call in 30 different plumbers, especially when some owners may be away. Presently, the prescribed rules do not cater for this.

The way forward is going to be for legislators, together with input from the industry, to allow some flexibility in who can maintain the geyser. Meanwhile, trustees need to engage more with their brokers or insurance advisors about higher claims ratios and find the best alternative for all the owners, even if this means imposing higher excesses.

Please contact Willie van Wyk at Bestsure on 0861 10 12 20 for best advice on sectional title insurance

Source : Mike Addison

How to assure your biggest asset - your income

In the first of our "How to manage life assurance" series, we look at why you need life assurance. Life assurance enables you to face the risks of life with greater confidence in the knowledge that, if anything happens healthwise to prevent you from earning an income, you and your dependants will be able to maintain your standard of living.

Ask most people what their greatest asset is and most will immediately think of the big-ticket items they have purchased, such as their house or car. The more financially savvy will think instead of their investments and retirement savings. Younger individuals who have not yet accumulated many assets may even believe that they have no "great" asset.

All are wrong, Andrew Warren, the marketing executive of Liberty Retail, says.

If you dig beneath the surface, you will realise that all the assets you own, and those you hope to own in the future, had to be purchased and, except for the few of us that inherited large sums of money, we generally have to work to earn the income we use to purchase our assets. Without income, it would be impossible to amass the material wealth and tangible assets we desire now and in the future.

So the greatest asset you own is not your house, car or retirement fund but your ability to earn the income that funds those things. It is the earning potential locked up inside you - and the value of that asset is realised with every pay cheque, bonus and promotion - that leads to your greater wealth.

On this basis, younger people are immensely wealthy; they have their whole working careers ahead of them and, as such, hold a tremendous store of future potential income. As time passes, they convert that potential into actual income, which funds their living expenses, pays off their student loans and allows them to buy their first car.

As their debts are cleared and the car is paid off, they start to save and invest some of their income to generate financial assets that will grow with time so that eventually, when their working career is over, it will be these saved-up financial assets that will sustain them in retirement.

Like all assets, your future potential income must be protected. Premature death, disability or illness may prevent you from realising the full value of your earning potential.

If you are older and close to retirement age, you will probably have achieved most of your earning potential. If you are severely injured in an accident and have made adequate provision for your retirement, you will probably be able to survive financially without having to work again.

But if you are young and are badly injured in an accident and consequently are unable to work, you will still have to support yourself and any dependants you may have now or in the future. No one will simply give you the money.

In other words, the disability you have sustained, if permanent, could limit your future earning potential.

There is only one way for most people to counter the loss of potential future earnings: by having life assurance against the risks of life, be they an accident or a debilitating disease. Life assurance companies offer a range of products that can ensure that your full potential is reached, no matter what may befall you along the way.

Your income asset or your potential future income is greatest when you are starting out in life, because your potential for earning an income is over a longer period. When you start off in life, you tend to have a very large amount of future potential income and a very small amount of financial capital.

Hedge against disaster
Warren says taking out life assurance should not depend on how healthy you are or how risky your lifestyle is. However, health and lifestyle do affect how accessible life insurance is and how expensive it is for you to buy.

Having good health and a safe, healthy lifestyle does not mean that you do not need life assurance. You can never foresee what may happen tomorrow.

Instead, the need for life assurance depends on how large your future potential income is or, to put it another way, how much you or your dependants stand to lose financially in the future should a disruptive event occur.

Events are random, and it is the magnitude of the impact of those events that determines need. You cannot say for sure when an event may occur, or if it may occur at all. Insurance is a great way to hedge your future potential income and make it safe so that you can invest to achieve your life's goals successfully.

So your future potential income asset is the foundation of everything, including the planned accumulation of wealth.

Most of us are under-assured
You are most likely to be under-assured and need to have a financial health check-up soon to ensure that you and your dependants are properly protected against the unexpected.

Two years ago, True South Actuaries & Consultants undertook research that showed that the vast majority of South Africans are under-insured against risks such as death and disability. The research found the average household earns R60 000 a year (R5 000 a month). At the time of the research the average amount by which the average household should have been assured against death was between R431 000 (if your dependants tightened their belts and did away with all luxuries) and R531 000 (if you wanted to preserve your dependants' standard of living). But actual life cover averaged a mere R239 000. These are the lump-sum amounts that would be needed to generate a monthly income to sustain your dependants. So, if you are Mr or Ms Average and the main breadwinner in your family, and you die or are disabled today, your family would have to cut its living standards by up to half. The annual cost for the average household to get its life cover up to the ideal level would be between R1 330 and R2 322 a year. The total amount that South Africans would have to spend to be properly assured is R34 trillion. Their cover is about R10 trillion short (or R5.6 trillion if their dependants tightened their belts).

To have sufficient life assurance to maintain your current standard of living, you should be paying premiums of about 3.9 percent of what you spend each month on living expenses. To meet a belt-tightening budget, you would have to pay premiums amounting to about 2.2 percent of what you spend each month on living expenses. Again, this is if you are Mr or Ms Average.

The three main risks to your ability to earn an income
1 Dying too soon
This is the risk of death, robbing your dependants of the asset of your future potential income, especially significant if death occurs early in life when your potential earning asset is large but you have little in actual accumulated assets.

Dependants may include your parents who have not planned properly for their retirement.

When you are younger you are likely to use debt to finance assets, particularly for big-ticket items such as a home. Loss of income plus debt could condemn your dependants to poverty and the loss of your home.

To cover both your unrealised income potential and your debt you need life assurance against premature death.

2 Reduced ability to work
A health event can compromise your ability to work or lower the size of your future potential income asset. You may suffer an event that affects your income potential but does not necessarily lead to disability. For example, you may have a non-fatal heart attack that places "workstyle" constraints on you in the future, such as no longer being able to work as hard or take on as much work stress and pressure as was possible in the past, thereby possibly resulting over time in fewer promotions or, if you are self-employed, worse business results.

For this you need dread disease life assurance.

3 Becoming disabled
A health event can prevent you from working altogether and result in you losing your entire future potential income asset from the date of the disability event until death.

A total loss of income has the same financial consequences for your family as your death, except you survive to experience the lost income with your family members.

To cover yourself and your dependants, you need disability and/or impairment assurance.

In most cases, the amount of assurance you need in simple terms is the difference between your earning potential plus debt and your accumulated investible assets.

Source : Personal Finance

The worst mistake to make with your life policy

Thousands of South Africans take out life insurance and other long-term risk policies each year, paying their monthly premiums religiously until policy maturation or claim date. You would think – after years of dedication – policyholders and beneficiaries would be bashing down their insurance company’s door to receive their payout. But this isn’t always the case. Policyholders sometimes lose track of policies while insurers cannot always trace beneficiaries when payments are due. Each year thousands of rand slip through the cracks to end up on insurers’ books as unclaimed benefit.

“An unclaimed benefit is a claim on which a notification has been received, but following notification of the claim all attempts to locate the claimant prove unsuccessful,” says Jimmy Miller, Senior Manager: Claims at Metropolitan Retail. These unclaimed benefits are typically spread between maturity and death benefits on life policies, with a small percentage generated from funeral business. Metropolitan Life reports the total value of all outstanding claims at year-end 2009 was R1.458bn. Old Mutual – one of South Africa’s larger insurers – had approximately R3bn in unclaimed benefits on its books at that date. “It should be noted that if a policyholder fails to claim benefits at maturity, the policy proceeds are shown as unclaimed benefits with effect from the maturity date, so the figure quoted includes benefits subject to claim,” adds Piet Spreeuwenberg, Client Services Manager at Old Mutual.

What happens to unclaimed benefits?

Life insurers have different internal policies for dealing with unclaimed benefits. Metropolitan says all claims are followed up for a period of three years after notification, in accordance with the Association of Savings and Investments South Africa (ASISA) Code on Unclaimed Benefits. Most insurers make use of external databases in an attempt to locate beneficiaries before writing off such claims to an inactive account. Old Mutual also makes use of financial advisers and tracking agencies to trace beneficiaries.

“Life assurance policies sometimes have specific maturity dates (this is no longer always the case, as many of the newer generation policies are ‘open-ended’) in terms of which benefits become contractually due,” says Spreeuwenberg. Unclaimed benefits are typically accounted for by the life insurance company and either held in the final investment structure (if appropriate) or swept into suspense accounts awaiting claim. Spreeuwenberg says these funds continue to generate returns as “determined by the nature of the underlying investment portfolio or policy.”

A policy with a fixed maturity date (such as the majority of retirement annuity and endowment policies) earns returns similar to short-term cash instruments, since the proceeds can be claimed at any time. These returns are adjusted for income tax and administration fees. The return earned in the case of ‘open ended’ contracts is typically the same as the underlying investment portfolios. Benefits on risk benefit policies (such as policies predominantly providing for death cover) are calculated in accordance with the contractual provisions which differ from contract to contract.

How to claim these benefits

There are a number of ways for policyholders to trace unclaimed benefits. The majority of the country’s life insurers follow processes as set out in the ASISA Code on Unclaimed Benefits already mentioned. “Claims against funds moved to the inactive accounts are always honoured,” says Metropolitan. “To access these funds beneficiaries can contact the insurer directly, or the offices of ASISA, who should assist them to claim outstanding benefits.” If you think you may be a beneficiary under a policy you should contact your life assurance company with as much detail as possible. Useful information would include the policy contract document, the identity document of the claimant, bank details of the claimant, a death certificate (in the event of the death of a life assured) etc.

“Most people claim within the first three to six months after the maturity date and 80% of customers claim within three years,” notes Spreeuwenberg. If you suspect you are due an unclaimed benefit we urge you to take action now and help to put a dent in the billions of rand lying on insurers’ books!

Premiums determined by who you are, how you buy and how you behave

Over the years insurance company rating structures have become progressively more complicated leaving many people wondering why they are paying more for insurance compared to a spouse or neighbour driving the same vehicle as theirs.

Gari Dombo, Managing Director, Alexander Forbes Insurance explains that “an insurer will calculate the average cost of different types of risk by examining claims histories. Premiums and discounts are calculated based on the ratio of factors that contribute to or reduce risk, with assumptions of future trends and profit being factored into the calculation.”

When making these calculations insurers do, however, remain mindful of the need for their pricing to be fair as well as competitive enough to attract and retain clients.

“It is as important for consumers to understand how these assessments contribute to their premiums as it is for industry players operating in a highly competitive insurance market” says Dombo.

Rating factors such as gender, marital status or age are used to estimate the risk involved in every individual’s situation and lifestyle. This is combined with the rating that the actual item insured attracts, such as the vehicle make and model, replacement value of the television set or security features in a home.

In the personal insurance market, it is essential to have motor vehicle rating structures that take into account the specific make and model of a vehicle since different vehicles have different repair costs. For example, “the most expensive components of one vehicle may be in front where collision damage is more frequent while another vehicles’ expensive components may be located in a less dangerous place” explains Dombo. This might make the insurance on the first car more expensive than the second, even if the first car was less valuable.

“The status of the driver is also an important factor in premium calculation” adds Dombo. For example, a young inexperienced driver purchasing a high powered vehicle with expensive parts, will be considered a high risk. This will be reflected in a comparatively high insurance premium.

So, when purchasing a new vehicle, “one should take particular notice of the insurance cost that it will attract” warns Dombo.

Another strong indication of future claims is a policy’s claims history. As such, “making sure there are no errors recorded against it can greatly improve the premiums an insurance company is willing to offer” advises Dombo.

Furthermore, it is essential for insurers to ensure fair contribution to the risk pool by rewarding clients with low claims frequencies, either with no claims bonuses or with lower premiums - a saving that clients enjoy up front every month.

That said the key element remains that the premium payable by each category of client should be enough to pay the claims and servicing cost of all the clients in that particular group of clients.

Certainly, “cross subsidisation of a high risk group by a low risk group is unsustainable and won’t last much longer in the current insurance market ” says Dombo. It is much fairer to profile each individual risk and rate it accordingly so that a person pays a premium appropriate to his or her risk profile.

So while getting fair and equitable rating right is the key to ensuring that clients get their money’s worth, in reality, “the claims of the unfortunate few will always be covered by the contributions of the many, this is the principle of insurance” concludes Dombo.

Please visit http://www.bestsure.co.za/ or contact 0861 10 12 20 for more info.

Source : Fanews