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Short Term Insurance
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Short term insurance, in broad terms, is insuring against the theft, loss, damage or destruction of physical objects owned by the insured. It also refers to the insuring of other types of risks, such as the loss of the use of your hands or retrenchment. Most people, however, concentrate on insuring their homes (homeowner’s insurance), cars (motor vehicle insurance) and the contents of their homes (household insurance). By taking out short term insurance an owner of such objects moves these risks to an outside party (the insurer). In return for paying a regular premium to the insurer, the insurer offers to pay an agreed sum of money should any of these risks be realized.

Anything that has a life insurance component is separate from short term insurance. Also, short term insurance applies for a limited period (as the name implies), with an annual review taking place as if the short term insurance were being initiated afresh. Some short-term insurance might even apply to short periods of time with calendar dates attached. So, for instance, one might insure a vehicle for the duration of a certain project, or insure sports gear for the duration of the season.

The distinction between short term insurance and long-term insurance (life) insurance exists because of the large inherent differences between insuring a person’s life, which involves a multitude of actuarial variable that apply to the risk of death, and insuring a physical object. Where a life is insured, the age, state of health and occupation of the person comes into play. Completely different risk factors apply to the insurance of physical goods, such as the area where the physical object is located, the use to which it is put, its replacement value, etc. These factors, as you can deduce, are completely different from those pertaining to life insurance.

There are over 100 short term insurance companies in South Africa, all vying with one another for your business, while endeavouring to remain profitable. It is worthwhile shopping around for short term insurance. Insurance companies have complicated ways of calculating the premiums payable by the insured. These actuarial calculations involve your personal set of circumstances as well as factors that are external to your personal circumstances. These include deteriorating road infrastructure, crime levels in the suburb concerned, climatic changes in the applicable area, the relative experience of other drivers on the roads, the frequency of accidents in the country concerned, etc.

When assessing the personal circumstances of anyone seeking short term insurance, the insurer will consider the value of the asset, the type of asset, and the owner of the asset. If, for example, a car owner wants to insure a vehicle, the insurer will look at the owner’s gender, age, driving experience, driving record, previous insurance claims and installed anti-theft devices, among other things. The reason for this is that the owner’s profile will have a strong influence on the likelihood of the risk they underwrite actually happening. Obviously, the greater the risk is perceived to be, the higher the premium will be. That is why it is a good thing to treat your belongings as if they were not insured – even if they are. You will build up a profile as a good risk, in short term insurance terms, and your premiums will remain affordable.

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