What Is Insurance?
We have all heard the word “insurance,” and it makes most of us nervous, because, who actually understands what insurance means?
In short, insurance is a contract, often called a policy, where an individual (you) or an entity (your business) or your community scheme purchases protection against specified losses, damage, illness, or at times death through a company that undertakes reimbursement to you by a replacement of an item, the repairs to the damaged items or fixtures or a monetary compensation for a specific premium in line with the contract/policy in place.
Now that the explanation is out of the way, insurance is so much more than a grudge purchase!
Insurance policies are used to protect against the risk of financial losses, both big and small. These losses may be caused by damage to you, your property, business, or possessions. This can also happen from liability for damage or injury to another person (also referred to as a third party).
There is a multitude of different insurance policies available, and virtually any individual or entity can find an insurance broker willing to assist with them being insured for the right price. It can be tailor-made to meet the needs that you or your company have. From handbag insurance, to rebuild value on your office park, insurance has your back. Just a note cheaper is not always better, whilst one would always like to pay the most competitive option it is important to ensure that you have looked at the terms of the contract in detail to ensure you will not be caught out at a later stage at the time of claiming.
The two types of Insurance are Short-Term Insurance and Long-Term Insurance.
Short-Term Insurance, generally speaking, covers your possessions. It refers to Car Insurance, Home Insurance, Cellphone Insurance, Travel Insurance, etc. The question you can ask yourself is “what in your life will change in the next 5 years?” You may buy a new car, invest in a first or new home, upgrade your cellphone, etc. If you do, your insurance on those items will have to grow and change too. As the name suggests, Short-Term Insurance is cover that you have for a set amount of time before an inevitable change takes place. With Short-Term insurance, the cover only caters for a maximum of a year and is renewed and revised annually.
Long-Term Insurance is about big, life-changing events. These are retirement, disability, and death. Examples of Long-Term Insurance include Life Insurance, Disability Cover, and Funeral Policies. Unlike Short-Term Insurance, you may expect the premiums of Long-Term Insurance to remain fairly stable over the period of the policy.
As an individual, you will need both Short-Term and Long-Term Insurance throughout your life. This is called Personal Lines Insurance. This is any kind of insurance that covers you as an individual against loss that results in injury, death, or loss of property. Personal Lines Insurance protects you from losses that you wouldn’t be able to afford to cover by yourself. Personal Lines makes it possible to do things like driving a car and owning a home without risking financial ruin.
When owning or running a business, the types of policies you require can vary, depending on the type of business that you have. For example, a fast-food restaurant needs a policy that covers damage or injury that happens as a result of cooking with a deep fryer. A car dealership won’t need this type of cover but does need cover for damage or injury that could occur during a test drive.
If you are a first-time homeowner depending on the type of home and where it is situated depends on what type of insurance, you may require. If a standalone home or a home in an estate, then one would need to purchase your own insurance for the fixtures of the property which can be done by the bank that has financed the purchase or you could purchase this cover through a broker. Should you have purchased in a complex that is considered as a Sectional Title Scheme. Through the body corporate there would need to be insurance for the fixtures of your unit, included as part of your levy payment.
Sectional Title Insurance can be a bit confusing, and you may be tempted to assume your Body Corporate has you covered. This can be the case but understanding the extent of what is covered and what is not can take a bit of time. We will go into this topic more in-depth in the future, but for now, we want you to know two things.
Who pays for Sectional Title Insurance? – This premium is generally shared between all the section holders (owners) and is included in your monthly levy amount. This is calculated on a Participation Quota Schedule, and you only pay for your area occupied.
What does Sectional Title Insurance cover? – At the very least, your Sectional Title Insurance should cover all residential sections (the homes in the complex) and the common property (the complex areas) for the full replacement value in the event of damage or destruction from things like fire, flooding, earthquakes, burst pipes, accidental damage, public liability as well as for your hot water installation systems (geysers). There are times when the Body Corporate choose to extend the basic coverage to include additional cover, but this is on a case-by-case basis. It is best to request a copy of the insurance policy to see what cover you have.
If you have ever wondered if insurance covers it, the best way to know is to request a copy of your policy schedule and policy wording and from there ask your broker to explain the cover and what is included and not. Or if there is a type of cover you are not sure is available but may need it, ask your broker.
Your broker is there to help and navigate you through this insurance journey to give you peace of mind and assistance when it is needed.