In tough economic times, this is where you should spend money on insurance

SEPTEMBER 15, 2016

In tough economic times, people do not have as much disposable income as they had before. This places stress on buying any product that is a grudge purchase. No-one is willing to lower their standard of living to find ways to save without giving up the things that matter to them like cars and holidays. 

The temptation is for people to cut back on their insurances. This can be exceptionally dangerous, even resulting in them losing the roofs over their families’ heads. However, cutting back on possibly unnecessary insurance cover is not a bad thing at all. Many people insure what they believe they are likely to lose or have stolen like a cell phone, rather than to look at what is less likely to happen but that can have far reaching consequences for them if it does happen, like a house fire spreading to a neighbour’s property.

A cell phone is likely to be claimed on once in every three years and is priced accordingly so you are better off looking after your phone, downgrading if you do lose it and biting the bullet until your next upgrade is due on your contract, than insuring it.  No company has ever gone insolvent and no individual has ever found themselves having to sell their house because they have needed to replace a lost or stolen cell phone.

 

How to make your insurance work for you

The first thing to do is to see how much of your disposable income you can spend on insuring your assets and your liabilities, and this is where things get a little tricky.  Remember that if you skimp too much, you could find that you can never afford to eat another meal out or go on holiday again, or that, once the garnishing order against your salary to meet your liability obligations has been dealt with, there is simply not enough money available to pay school fees for your children.

Let us look at some scenarios that could land you in real trouble.  Your house or the building that you run your business from burns down and is not insured, or is not adequately insured; or your car is written off or stolen, you cannot replace it and can’t get to your place of work. If you do not however have fire, water and hail damage cover for your building or comprehensive cover for your car (unless of course you have a number of cars or can afford to replace your car) then I would advise you to take insurance cover immediately.  You never know when bad luck might strike!

 

Your liability to other people has to be considered

Let us now look at the less obvious and, in my opinion critical, insurance cover that many people do not consider nearly as seriously as they should.

Your first liability to consider is the liability that you cannot escape if you own or use a motor car.  What happens if you are the driver who loses control of his vehicle and writes off three Porsches and a Ferrari? Is it likely to happen? No. However, if it does happen, how are you going to pay for the damage? The legal fees alone will really hurt your pocket! 

Even if you do not insure your car for accident damage or theft, my advice is to take third party liability cover for your car and yourself as a driver. If you use your car for business purposes, please make sure that you tell your insurer this and/or that the company you work for has what is called “contingent liability” to cover you in the above circumstances. The good news is that third party liability cover and contingency liability cover are both affordable.

What if a friend trips over your doorstep and breaks a hip? A client is injured by falling stock?  A fire is started, caused by your or staff negligence and spreads to your neighbour’s property? These scenarios would be insured by taking Public Liability Insurance on both your personal policy and your business policy.  Generally, you would have to take home or business contents insurance to be able to take liability cover but again this cover is affordable.

 

Make sure you have adequate insurance – don’t insure what you can afford to replace

Use the inventory’s that are available from your insurer to make sure you have made adequate lists of your items, carefully calculate the replacement value of your assets, and be sure to fill in the information required to determine your profit correctly. Remember that gross profit includes the costs of being in business. If you are uncertain, ask for advice from your broker or insurance company. There is nothing more heart-breaking than discovering, at claims stage, that the amount you are entitled to claim does not allow you to replace what you have lost.

So what cover can you remove without it being “false economy”?  The expensive covers include theft, all risks cover (cover away from your premises) on cell phones, laptops or jewellery, cover for money on your premises or breakage of glass or accidental damage.  These are all areas that you are likely to have claims on but none of the claims are likely to cause you to change the lifestyle that you enjoy and have become accustomed to.  The cover generally taken under these sections is limited to an amount that you can afford to pay for yourself.

Particularly when your resources are limited, insure what can change your lifestyle not what you can afford to replace.  This is a far better way of getting the maximum benefit for a minimum premium than insuring what you know you are likely to claim on.  Don’t wait until it is too late!