Financial Freedom: Can My Insurance Quit On Me?

by | Apr 7, 2012 | Life

2011 was a rough year for many of us! Let’s take a look at what happened to Paul in 2011…

First off in January his son trashed his car after a late-night party. No problem at all, the car and home insurance company settled in full. Then in March, his wife had a fender bender in rush-hour…R 80, 000 later but hey, no problem, insurance company once again settled in full. The month of May this time – Paul’s new car was stolen at work. Insurance company once again settled. August – break in at Paul’s home – R 25, 000 LCD flatscreen TV stolen. Atmosphere at insurance company becoming decidedly chilly! November – Paul receives a letter from insurer stating that they are giving him 30 days’ notice of their intention to cancel his insurance!

Are they allowed to do this?

The answer is yes.

Car and home insurance is nothing like life insurance where the underwriting is done upfront, a fair premium is determined for the level of cover you enjoy, and come hell or high water – if you die, they pay!

With car and home insurance, someone who was not a risk a year ago can become a massive liability going forward. To protect themselves, short-term insurers include an escape clause under the ‘general terms and conditions’, but in all fairness to them, cancellation of insurance is seen as a last resort.

How does an insurance company handle someone who is becoming a bad risk?

Basically they have three options:

– Cancel the car and home insurance policy.
– Increase the monthly premiums.
– Increase the excesses payable.

We’ve already looked at the cancellation of a car and home insurance contract so let’s ignore that one for the moment.

Increase the monthly premiums

The problem with this option is that as the premium increases clients will do one of two things:

Shop around for insurance elsewhere (which might be a good thing for the insurance company).

Start claiming more regularly since they feel justified to do so because of the higher premium.

Increase the excesses payable

This route is usually the most popular. Insurers simply increase the excesses which makes it more expensive for the insured to claim.

“But that doesn’t apply to me because I’ve got excess waiver!” I can already hear you saying. Problem is that the insurer will in any case cancel this excess waiver as well.

So hopefully now you know a little bit more about car and home insurance than you previously might have.

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