*** Insurance premiums are set to rise 5% during the year...

*** 5 ways to cut expenses from your monthly insurance payments...

*** It's time to assess your risk profile… and more...

From the pen of Karin Iten

Dear Investment Academy reader,

It’s scary really, not only has petrol gone up (AGAIN) but so has food and now we're being warned that we can expect insurance policy premiums to be readjusted (higher) for the rest of the year too. In fact, according to forecasts, we can expect to see a premium rise of up to 5% in insurance policies soon. This is particularly worrying since many of us are already struggling to make ends meet with prices as high as they currently are.

But more worrying is the number of people who’ve gotten rid of their insurance policies all together. This is a very dangerous move to make. Although South Africa’s robbery statistics have fallen dramatically in the past year (they’re down 39.2%), we still have one of the highest incidence of crime and road accidents in the world.

Going to such an extreme isn’t a wise move but, there are some very simple methods you can implement that can save you thousands of rands in premiums each year.

Tip #1: It’s time to take stock

Many of us are simply too lazy to take the time to reassess our policies on an annual basis. But, in truth, this is the easiest way to cut your insurance expenses by as much as 40%. Consider, for instance, scrapping insurance for items that aren’t likely to get stolen such as your reading glasses, the watch you wear every day (since you’ll probably have it on) and your cell phone (cell phone insurance is notoriously over-rated and highly expensive). But that’s not all you should do. You should go through your policy on an annual basis and check you still own the items you’re paying insurance on. You should also make sure articles whose replacement values depreciate over time (such as your car) are insured accordingly.

You can also opt to add an element of “self-insurance” to your portfolio. This is a decision to exclude certain categories of goods from your insurance policy. This means that if they get stolen, you won’t get a payout. But the trick is determining what items are less likely to get stolen. One way of doing this is to uninsure all your collectible items (such as book collections or paintings) for theft. Just remember, with items like these, you’re going to want to make sure they’re insured against fire and water damage – if you don’t, and your house burns down, you’ll get nothing.

Tip #2: Ask yourself: Can you afford not to have it insured?

After working out what items you’re going to self-insure, ask yourself how many items you own that you’d battle to replace if you had to replace them yourself and not through your insurance company. That’s how many items you should fully insure through your insurance company. Things that you use on a daily basis, such as kitchen electrical appliances, are generally not worth insuring. Instead, put a small amount of cash away in the bank and, should you need to replace the item, you can use these funds to do so.

Tip #3: Assess your risk profile

The better your security measures, the lower your premiums should be. Just don’t forget to check your security precautions work from time to time. If they don’t and you get robbed, there’s a good chance your insurance will dispute your claim or, worse, won’t pay you out at all since your coverage depends on your level of security.

Tip #4: Increase your excess

This might sound strange, but you can actually lower your monthly premiums by opting to increase the excess you pay should something go wrong. In fact, if you increase your excess from R2 000 to R10 000 you could cut your premiums down by as much as 30%. And this will help you with your “no-claim” bonus as well. How? Well, the trick is not to claim for amounts smaller than your excess since this will not only mean you don’t receive your bonus but will also ensure your premiums (which are directly related to the number of claims you submit) don’t get pushed up as a result.

Tip #5: Don’t diversify

It’s not a good idea to have different insurance policies with different companies. Not only will this create a lot of hassle when you try to claim for stolen/damaged items, but having all your insurances with one insurance basket actually reduces your overall premium costs. And, should you wish to change your insurers, it’ll create a lot of negotiation leverage in your favour.

That's me for this week. Aiden will be joining you on Wednesday with a new addition for the Investment Academy Dummy Portfolio.

Karin Iten
For the Investment Academy