Broadly speaking there are two primary types of insurance that people
generally buy, namely short-term insurance and long-term insurance. Long-term
insurance is life insurance, and long-term insurance policies pay out a cash
value when the insured individual dies. Short term insurance is insurance
for the possessions that an individual owns, and short term insurance is
usually taken out for your home, the contents in your home, and your car.
When you purchase short-term insurance you are protecting yourself against the
possibility of losing your belongings and having to replace them yourself. Now
the insurance company carries that risk, and in exchange for taking on this risk
they charge you a monthly fee (the premium). The size of the premium depends
mainly on the overall amount for which you wish to be insured.
If your car is stolen or written off in an accident, or your home is burgled and
you lose valuable items then your insurance company will reimburse you for these
losses because you have short-term insurance. They will either give you cash or
replace the items themselves. Short-term insurance companies do require you to
pay what is known as excess when you make a claim. The excess is a predetermined
amount that you agree to contribute towards the total value of your claim. If
your excess on your car is R1,000 and you file a claim for R10,000 then the
first R1,000 of that claim is paid by you and the short-term insurer pays the
balance of R9,000. There are two types of excess: voluntary excess and
compulsory excess. If you are willing to pay voluntary excess then your
insurance provider drops the cost of your premiums.
When you purchase short-term insurance you must be fully aware of the conditions
of your policy. These conditions must be met otherwise your claim might be
denied. A prime example of this in South African short-term insurance is with
car insurance where the policy might insist that the car is equipped with a
vehicle-tracking device. If your car is hijacked and does not have the device
installed your insurance company might not honour the claim. The obligation is
yours to see what the policy requires and what the policy may exclude.
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