From fender benders on the road to kitchen fires and the airline losing your luggage. Life is full of nasty surprises! While there’s no way to prevent any of these unfortunate events from happening, there is a way to protect yourself from the financial repercussions.
Short term insurance is a type of insurance that protects you and your assets against potential disasters. As the name suggests, the cover is not indefinite, and you are not covered for all types of disasters. In exchange for paying monthly premiums, you can claim compensation from your insurers in the event of damage, illness, or theft. Besides financial compensation, your insurer may offer additional services such as helping you find skilled repairmen, roadside assistance, or providing emergency accommodation.
Short term insurance is an umbrella term for many types of insurance that protect your assets. Examples of short-term insurance include car insurance, medical aid, home insurance, and travel insurance.
The types of risks covered by short term insurance are potentially more regularly occurring, everyday hazards. Without the financial cushioning to combat these risks, you could find yourself depleting your savings or piling on debt.
For example, without home insurance, you would have to pay out of pocket if your geyser broke or your home suffered weather damage. The repairs and replacements could have you forking over thousands of rands, and you would have to spend hours finding skilled repairmen and sourcing parts from a reputable hardware store.
Short term insurance premiums can depend heavily on your risk profile, in other words how likely are you to file a claim? For example, car insurers would charge a higher premium to younger individuals because they have less experience with driving and are more likely to claim.
As you make claims, your insurer will begin to gather data about you and your premiums may increase or decrease accordingly. For example, if you are involved in multiple car accidents over a period of a few years, your car insurance company may deem you to be a high-risk individual and you may have to pay higher premiums compared to other people in your demographic.
The main difference between short term and long term insurance is the types of risks that they cover and how your premiums are calculated. Short term insurance takes into account day to day risks and mishaps such as thefts, fires, water damage, or illnesses. With short term insurance, your premiums can fluctuate depending on your risk, previous claims, and even inflation.
Long term insurance typically is meant to cover solitary events, and financial losses to you and your loved ones such as death, disability, and retirement. Examples of long term insurance include life cover, retirement annuities, and dread disease cover. With long term insurance, your risk profile is calculated by actuaries when you sign up for coverage. Actuarial scientists are able to produce highly accurate risk profiles, therefore your premiums are less likely to change over short periods of time.
With short term insurance, you can claim multiple times throughout your cover. For example, medical aid will cover a certain number of procedures, doctor's visits, and medical devices over the course of a year. In contrast, long term insurance only pays out at the end of the cover term. For example, in the case of life insurance, you will be required to pay premiums every month until you reach a certain age or your death. Your loved ones can then claim on your life insurance policy and receive your lump sum.
As we mentioned above, there are quite a few different types of insurance companies that offer short term insurance. Let's look at a few examples!
From road accidents and flat tyres to hijackings and smash and grabs, vehicle insurance can protect you from major financial losses, aid you through traumatic experiences and give you a sense of security while on the road. Companies such as MiWay and Budget Insurance offer comprehensive motor vehicle insurance which covers you in the event of accidents, theft, damage. These companies also offer roadside assistance and mechanic referrals.
Your home is likely your most expensive asset, so it only makes sense to invest in home insurance. When it comes to home insurance, there are three types of cover you can get: homeowner's or building insurance, home content insurance, and personal valuables insurance. Homeowner's insurance can be a requirement for taking out a home loan, and it covers a comprehensive list of damages mainly related to the structure.
Health is wealth! When it comes to short term medical-related insurance, you can take out a medical insurance plan or a medical aid plan. Medical insurance requires you to pay a premium every month, and you will require a lump sum in the event of illness or hospitalization. Medical aid also requires you to pay monthly premiums, however, you can make claims whenever you need to pay for doctor's visits, hospital stays, medication, and allied health professional appointments.
Running your own business can be really risky! Business insurance helps negate some of that risk by financially protecting you in the event of damages to your property or employees from natural disasters, theft, and unforeseen injuries. Business insurance can also help provide a financial cushion if you are involved in a lawsuit. Companies that offer business insurance include Old Mutual and 1st for women.
Travel insurance
When you’re on vacation, the last thing you want to worry about is dealing with lost luggage, delayed flights, or getting sick while abroad. Travel insurance protects you and your assets while in a foreign country, by offering comprehensive cover for theft, loss, damage, and illness. Companies that offer travel insurance include AIG, Hollard, and Old Mutual.
Making a financial decision to compensate for life’s uncertainty can be tricky. Luckily, BudgetGist is here to keep you informed and help you make the right choices! We are South Africa’s information hub for all things related to finance and money
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