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What is Short Term Insurance? An Easy Guide Covering All The Basics

Monday, February 21, 2022

Short term insurance is a must for anyone who owns a car, home, boat, travels often or has a business. Shockingly, about 70% of cars on South Africa’s roads are not insured.[1] What would happen if you drive an uninsured car, and you have an accident? What if your wonderful home burns down? You’ll probably have to pay for the damage caused from your own pocket. Do you have a nest egg tucked away somewhere to cover against an unforeseen circumstance like these? If you can, great. But if you can’t, Dialdirect suggest you read on.

You can avoid having to pay these extra expenses by taking short term insurance. Insurance companies like Dialdirect have various short term insurances to cater for your needs. In this article, you’ll learn what’s short term insurance and its benefits, the different types of short term insurance policies you can get, how short term insurance differs from long term insurance and how short term insurance works.

What is short term insurance?

Short term insurance is a policy you have with an insurer and includes all types of insurance with the exception of life insurance (long term insurance). The policy is valid for a limited  time period and covers areas like car insurance, business insurance, home contents insurance, travel insurance and pet insurance. 

No one can predict what will happen tomorrow. For example, who knew how many car crashes would occur between December 2021 and January 2022? Your home might be gutted by fire tonight or be flooded during the rainy seasons. When things like these happen, you can lose your home and worldly possessions. 

Could you afford to repair your car if you were involved in a collision? Would you be able to rebuild your home if it burned down or replace or your home contents? For many, the answer is no because they don’t have a short term insurance policy. 

Short term insurance is a financial guardrail against unexpected misfortunes where your insurer will pay for repairs or replacement, or a lump cash sum,  if you claim against a short term insurance policy. The type of payout you receive will depend on the kind of short term insurance you have. In a nutshell, short term insurance repairs or replaces your valuable possessions, such as a car or home and helps finance those unforeseen liabilities that we cannot realistically afford to pay on our own.

What is the difference between long term and short term insurance?

The short term insurance covers possessions, like your home, vehicles, and household appliances etc. The premiums changes either annually or when your circumstances change. For example, if you have an insured car and you exchange it for a new one, you’ll have to get a new car insurance policy. In contrast, long term insurance is associated with long-term care, like death, disability or retirement. The premiums remain relatively constant over the policy’s lifetime. Unlike short term insurance, long term insurance covers you or your family financially under the circumstances of death, disability or retirement. 

What are the examples of short term insurance?

Short term insurance comes in a couple of varieties, including home insurance, vehicle insurance, home insurance, building insurance, home content insurance and portable possessions insurance.

  • Vehicle insurance: Vehicle or auto insurance covers you financially if you incur things like damages, theft or loss of your car, motorbike, trailer, watercraft or caravan. 

  • Home contents insurance: This is an insurance that protects you against loss, theft or damage to your home contents, including your smart TV, furniture and a generator you use to handle load-shedding. 

  • Building insurance: Your home is arguably the most important and expensive asset. You can protect yourself in case it gets damaged by events like fire, flood or earthquake.

  • Portable possessions insurance: This type of insurance covers you against theft, loss or accidental damage to your smartwatch, smartphone, wedding ring or any other valuable portable item.

Long term insurance and its examples

Would you be able to cover your living expenses in case you become disabled or retire? About half of South Africans do not have a retirement fund.[2] Shockingly, six in ten people accumulate retirement money enough to cover only six months’ worth of living expenses.

Your situation doesn’t have to be this way; you can protect yourself and loved ones with an adequate retirement fund, a form of long term insurance. When you retire, are temporarily or permanently disabled or die, your insurer pays out a lump sum that could be used to pay living expenses, debt or renovate your home.

Some of the common examples of long term insurance are:

  • Life insurance: A policy that provides a lump sum to your family in the event of your death, and can be invested, used to settle debt or cover day-to-day expenses.

  • Provident fund: A retirement nest egg you build by making frequent contributions (often monthly) to your employer. When you retire, you receive one third of your money in cash and the remaining two thirds as regular income—often monthly.

  • Disability policy: An insurance that pays out a lump sum if you become temporarily or permanently disabled. You can use this money to cover living expenses, therapies or invest a portion of it. 

  • Health cover or insurance: An insurance that pays medical expenses in case you become ill. Some costs covered by health insurance include hospitalisation or doctor’s consultation fees.

For peace of mind and to care for your loved ones, it's worth investing in both short term and long term insurance. When you’re involved in an accident, damage someone’s car or become disabled, you won’t have to run around borrowing money to cover the required expenses and liabilities.

How does short term insurance work?

In short term insurance, the insured person pays a monthly premium based on their individual’s risk profile. Insurance companies determine a person’s risk profile based on various factors. 

If you’re taking car insurance, an insurance company like Dialdirect will use your age, the location of your car during the day and overnight, driving experience and previous record of accidents to estimate your risk profile. 

A person with a high risk can expect to pay a higher premium than someone who has a lower risk. Risk, in this case, means the probability of causing a car accident. 

At Dialdirect, your premium will also depend on the type of vehicle insurance you take. Options available include comprehensive cover, third-party only cover, comprehensive off-road car insurance, and third-party, fire, and theft insurance.

It's advisable to think and assess your needs when you are taking out a short term insurance policy. Speak to a broker to discuss your options.

Get the best short term insurance deals with Dialdirect

Dialdirect offers competitive long term and short term insurance policies to people who say “yes” to protection against unforeseen circumstances like car accidents, theft, death, or loss of their portable possessions. To get started with Dialdirect insurance cover, get an insurance quote and qualify for a 75% cash back each month. 

Sources:

[1] News24: 70% of South Africans have no insurance 

[2] BusinessTech: Shock retirement numbers for South Africa