When most people think about insurance, the common types of policies that often come to mind are funeral covers, car insurance and/or life cover policies. In most cases, we often confuse what each type of insurance cover is meant for and/or why we need it. As if the confusion is not enough, most people view insurance as an unnecessary expense that we can do away with (I mean any kind of saving goes a long way, even that M200.00 right?). As a result, we often sacrifice paying a premium (usually paid monthly or annually depending on the insurer) to protect our assets with the hope of making a saving; until a tragedy like a burglary, car accident or a massive thunder storm leaves you in financial ruin (the kind of ruin that can set you back financially for years on end). Then you ask yourself “ Was the M200.00 saving really worth it when you’ve lost M200, 000.00?
A friend of mine spent many months saving money to buy a Samsung curved smart TV (talk about expensive taste!). Owning this smart TV was a goal he was set on achieving and indeed he achieved it after working hard to save for it. The excitement was contagious when he finally brought the smart TV home (I suppose that also comes with achieving one’s goals). Months later however, the Smart TV was damaged due to lightning, leaving him with a financial loss of M25, 000.00 (this was one expensive TV and he did not have insurance). To replace his most valued possession he had to withdraw M25, 000.00 from his investment, setting him back financially. He could have avoided this financial loss had he considered risk management strategies such as having insurance.
So why is it important to have insurance?
Insurance is defined as a means of transferring financial risk by spreading the risk amongst a number of people who are exposed to the same risk (South African Financial Planning, 2018). Insurance can be divided into long term insurance and short term insurance and understanding the difference is important. Short term insurance (which will be the focus for this article) includes policies such as motor policy, accident and health policy, property insurance and house content insurance to name a few. These policies help to protect us from financial loss caused by various personal risks such as the potential loss of income (due to loss of employment or illness), property risk where we can loose our homes due to fire, loose our valuables due to theft or malicious damage. We can also cause damage to other peoples’ property such as crashing into their cars or property. The impact these risk events can have on our finances should they happen are detrimental (just like my friend with the Samsung smart TV).
There are different ways one can minimise the impact of these risk events should they happen for example, you can avoid the risk of losing your smart TV by not buying the TV, this way you are not exposed to it being struck by lightning. The second option is to reduce the risk by implementing measures to decrease the risk exposure e.g. you unplug the TV during a thunderstorm. Third option is to transfer the risk to an insurance company in exchange for a premium or as a fourth option retain the risk yourself through self-insurance. This is where you save money that will be used to replace the asset should it be damaged or stolen, but how easy is it to do this?
In my friend’s case with the Samsung smart TV the most viable option (in my opinion) was to have house contents insurance cover, a policy most people do not know much about. Under House contents cover you can insure your house contents (TV, furniture, clothing, gadgets etc.) against loss or damage irrespective of whether you are renting or you own the property. House contents cover is a peril named policy that covers only perils (fire, lightning, water, storm etc.) named in the policy. For gadgets covered under the House contents policy, they too are limited to the named perils. You can pay premiums on a monthly or annual basis depending on the insurer. And in the event of damage or loss, you are able to claim from the insurance company and be indemnified (compensated and reinstated back to same position prior to the financial loss). Should you want a broader cover that protects your movable gadgets, speak to your insurance broker about an All Risk cover. Had my friend known and insured his smart TV, he could have avoided withdrawing M25, 000.00 from his investment and losing out on interest.
So what should one take into consideration when looking for a house contents cover?
Speak to a legally registered insurance broker or insurance company
For all your insurance needs, make sure to speak to a representative from a legally registered insurance broker or company. The list of legally registered insurance brokers and insurance companies is available from the Central Bank of Lesotho (CBL) https://www.centralbank.org.ls/index.php/financial-stability/95-supervision/619-insurance-companies-in-lesotho-as-at-march-2008
Protect your assets against damage or loss by getting the right cover
We work very hard saving money to buy assets/possession (smart TVs, luxurious corner couches, double door fridges, cell phones or laptops). It does not make sense not to protect these assets against any risk such as burglary, malicious damage or theft. Having the right cover in place is very important and I must also emphasise the importance of reading your contract carefully (including the terms and conditions, yes they are important despite the fine print). Ask relevant questions to ensure that you have a cover suitable to your needs and that it covers you adequately. It is also very important that you are honest with your insurer- full disclosure is key. This means that you must tell the insurer everything that could materially affect your cover for example that leaking geyser when taking out the cover. By so doing, you avoid any surprises should you need to claim later on.
Pay your premiums
Paying your premiums is extremely important. By paying your premiums you avoid the risk of your policy lapsing. If your policy lapses, this means that you are not covered and are exposed to a financial loss. Avoid this and pay your premiums using the many convenient methods such as debit orders, electronic transfers (EFT), cash or mobile money payments. Speak to your insurance broker about suitable payment options, get covered and protect your assets with a house contents cover.
