South Africans battling the rising cost of living should not be tempted to cancel their car insurance policies to free up cash flow and should instead look at alternative options to reduce their monthly insurance costs, says Old Mutual Insure.
The latest cost of living squeeze to hit cash strapped consumers was an increase in fuel costs which saw petrol prices rise by 74 cents a litre and diesel by 91 cents a litre thanks to a combination of higher crude oil prices, a weak rand and an increase in fuel levies. While consumer inflation eased to 4% in January from 4.5% in December 2018, this was down from an 18-month high of 5.2% reached in November.
“Instead of cancelling your insurance policy altogether rather sit down with your broker or speak to your service provider to figure out a way to reduce your monthly premium while still remaining insured,” says Christelle Colman, Old Mutual Insure’s Executive for High Net-Worth Solutions. “While it may be tempting to cancel your policy in an attempt to save money, you could end up in a far worse financial situation if you are without cover and end up having an accident.”
Tips for reducing your insurance premiums
Colman’s number one tip to reduce your insurance premiums is to ask your provider to increase your excess in exchange for lowering your premiums. The excess is the portion you are expected to pay towards a claim in the event of an accident so by increasing this amount you are effectively reducing the liability on your insurer who can then reduce your monthly premiums.
“Of course, this does mean that you effectively act as your own insurer, or at least to a certain extent, which means you then need to save so that you have the funds available to pay the excess should that become necessary,” says Colman. “You’ll also want to focus on driving responsibly so that you reduce the chances of having an accident.”
Another obvious way to reduce your premiums is to ask your broker to get a number of quotes from different providers or to shop around yourself. That way you can choose the most cost effective option available for your specific needs. If you have several different insurance policies with different providers, it can also pay you to consolidate them into a single portfolio with a single provider who will usually be able to offer a better price for a combined policy covering your car, home and household contents than if you had each of those policies with a different insurer.
If you’re still battling to make payments then you can also consider taking out a third party fire and theft insurance policy for your vehicle. This sort of policy covers you in the event that your car is stolen or damaged by fire but does not cover you in the event of an accident, although it will cover damages to the other vehicle involved in the accident should that be necessary.
“If you drive into someone’s Lamborghini or Porsche with an older, vehicle that is out of warranty you might be liable for those repairs,” says Colman. “This is where third party fire and theft insurance comes in handy as it covers you for this sort of eventuality as well as the risk of fire or theft. However, once again you’ll have to back your driving skills to make sure you don’t have an accident as it won’t cover damages to your car.”
Colman says this sort of policy is usually only suitable for people driving older cars that are out of warranty and are fully paid off. It is also probably better suited to someone who is either not totally reliant on the car in question to earn their income.
Another option is to simply downgrade to a cheaper or smaller car, which will not only incur lower premiums but will usually also help you save on petrol assuming it has a smaller capacity engine. Finally, Colman says that a lot of insurance heart ache can be avoided by simply making sure you have the funds available in your bank account to meet your monthly insurance premiums.
“Probably the biggest cause of policy cancellations is debit order defaults, which occurs when someone simply doesn’t have the funds available in their bank account for the debit order to go off,” says Colman. “This can be an administrative nightmare if you have an accident in this scenario and can even result in you losing your cover altogether.”