South African households have not been spared the effects of the global economic meltdown. In a bid to make ends meet from one month to the next some are cancelling their insurance policies.

Debbie Donaldson, Managing Director Personal Lines of FNBIB, says cancelling a policy now could have serious financial ramifications in the long run.

"We are fully aware that many households are taking a great deal of financial strain from the prevailing economic conditions, but cancelling an insurance policy now would be ill advised. Yes, it will provide some relief in the short term, but should an accident strike you could find yourself in a dire position," says Donaldson.

To illustrate why cancelling a policy is imprudent, Donaldson uses an example of a customer who loses essential home items with a market value of R200 000 because of a fire or theft. Without household contents insurance the client would be forced to self fund the replacement, which is all good and well should there be readily available funds. The situation could be worse if a client who has cancelled his motor insurance is involved in a car accident and is the guilty party. They will have to pay for own damages and those of other parties involved in the accident.

"The long-term costs of canceling a policy could spiral and households could easily see themselves forking hundreds of thousands of rands they don’t have," she says.

Ways to reduce your insurance premiums:

1. Request a higher or voluntary excess. The excess amount is the first amount payable by you and will be deducted from any claims payment. In most cases a higher excess will reduce the monthly premium.

2. Forgo coverage you don’t need. Think about dropping comprehensive coverage on older cars with a low market value. Such coverage often is not worth it because any claim you make probably won’t exceed the cost of the insurance. However, ensure that you buy cover to protect you against damage and/or liability claims to another party.

3. Purchase a low-profile car. It’s more expensive to insure a vehicle that is expensive to repair, popular with thieves or known for not having the greatest safety record.

4. Opt for safety add-ons. You can qualify for a discount on many policies if you have anti-theft devices such as a tracking device and an alarm system.

5. Combine policies with one insurer. You may save money if you insure all your vehicles, including trailers, buildings and household contents, on a single policy.

6. Ask about other discounts. You might also be able to pay less if you’re older than 55 and/or retired, if you’ve had no accidents or if you’re a longtime customer.

7. Make sure you get the best deal. Request your broker to evaluate your policy and check across insurers to make sure you’re paying the lowest overall amount.

8. Update the retail value of your vehicle. For vehicle insurance you can easily have your premium reduced if you reassess the current retail value of your vehicle and adjust it accordingly.

9. Approach your broker with a view to selecting specific household items you wish to cover which would give you peace of mind in the event of a catastrophe.

10. Review your home’s security, entitling you to a discounted premium.

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