Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

Se­nior cit­i­zens on fixed in­comes who have been hard hit by the low in­ter­est rates of the past two years are re­duc­ing and, in some cases, can­celling their short-term in­surance to save costs.

But the con­se­quences of dis­pens­ing with in­surance can be dis­as­trous for pen­sion­ers, Deb­bie Bar­ret, the gen­eral mar­ket­ing man­ager for First Na­tional Bank In­surance Bro­kers, says.

She says se­nior cit­i­zens may face huge claims to cover their third-party or per­sonal li­a­bil­ity ex­po­sure, which could ruin them fi­nan­cially. Third-party in­surance refers to cover for any claims made by a per­son other than the per­son whose prop­erty you dam­age. For ex­am­ple, if you are in­volved in a car ac­ci­dent where you are at fault, you may be li­able for the dam­age to the other driver’s car, as well as for any in­juries sus­tained by the oc­cu­pants of the other car.

Third-party in­surance is not re­stricted to car in­surance. Per­sonal li­a­bil­ity in­surance cov­ers you for in­stances when you may be held per­son­ally li­able to pay com­pen­sa­tion be­cause your neg­li­gence or that of a mem­ber of your house­hold re­sulted in ac­ci­den­tal dam­age to some­one else’s prop­erty or in per­sonal in­jury or death.

Bar­ret says it is im­por­tant to be aware of the fol­low­ing if you are con­sid­er­ing self-in­surance:

Self-in­surance is most ap­pro­pri­ate for high-net-worth in­di­vid­u­als who have cash re­serves and the dis­ci­pline not to spend their emer­gency funds. “Self-in­surance for the av­er­age con­sumer is apt to de­gen­er­ate over time and be­come non-ex­is­tent, leav­ing you ex­posed to dire fi­nan­cial risk,” she says.

If you be­lieve that you can make self-in­surance work, you should make sure that you have suf­fi­cient funds to cover any third­party and per­sonal li­a­bil­ity claims against you, be­cause such claims can run into mil­lions of rands.

Older peo­ple some­times qual­ify for re­duced premi­ums, be­cause they con­sti­tute a lower risk as a re­sult of their ex­pe­ri­ence and more pru­dent life­styles.

You and your bro­ker should reg­u­larly re­view your in­surance needs to en­sure that you have the ap­pro­pri­ate level of cover in place. This ap­plies not only when you have ac­cu­mu­lated more pos­ses­sions but also if you have downsized.

Bar­ret says while dis­ci­plined and pru­dent older peo­ple are less ex­posed to cer­tain risks than are young peo­ple, in some re­spects they are more vul­ner­a­ble. For ex­am­ple, she says, a younger per­son who earns a salary may be able to re­place his or her losses, whereas a pen­sioner who re­lies on a fixed monthly in­come of­ten lacks the fi­nan­cial re­sources to make good a ma­jor loss.

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