Get the facts right before choosing insurance cover

Insurance is more than the sum of risks covered, as an insurance policy not only covers potential risks but also provides peace of mind.

And, therefore, when it comes to insuring your car, home or a trip abroad, it's always advisable to get the facts right.

Let's take one of the most common of all insurance products first, ie, auto or motor insurance. It's compulsory in the UAE to have your vehicle insured once you buy it. However, when it comes to choosing an insurance cover for their car, people often tend to make various mistakes. A motor insurance is not the same as buying any model of car, experts believe.

"It is important for people to understand that when they pay for insurance for a brand new car, they are buying a particular class of product. Therefore, it is important for them to read the policy wordings in the same way that they like to see under the bonnet of their car and see what lies underneath," says Jonathan Jane, Regional Retail Manager, AXA Insurance (Gulf), Dubai.

Shun pre-conceived notions

Insurance experts say when going to choose auto insurance the biggest myth to have or the biggest mistake a customer makes is the false assumption that all products are the same. This leads him to put his hands on the insurance product that commands the lowest premium without sparing much thought on the insurance cover he is getting in return for what he pays.

"A customer gets what he pays for and this thought process remains the same when they buy a car. Therefore, a customer has to look at the covers he's getting and not the premium he's paying," says Jane.

Another point to ensure is that the auto insurance, or for that matter any insurance product you buy, must meet your needs. "In case of motor insurance, if you have taken a policy that has breakdown assistance or bought a hire car facility in case you've asked for it, it's important that you're aware of that and in times of claim you use them. Many people may have breakdown assistance cover, but they may not be aware or forget that they actually have this cover," says Karl Gray, Director of Personal Lines (Middle East), RSA Insurance.

Choosing price over cover and service, not checking where the vehicle will be repaired at the time of an accident, not checking what the deductible is on the policy and if there is a discount if the deductible is increased, not insuring your car for replacement value and instead for the balance loan amount or the price you think it is to reduce premium, are some of the biggest mistakes one makes when choosing a motor insurance policy, says David Hunt, Regional Head of Insurance, HSBC Middle East.

Once a customer has decided which auto insurance product he is going to buy, the next stage is ensuring how to put the motor insurance policy to work best.

The most important attribute of an insurance policy is the ability of the insurance company to respond if you have a claim, says Gray.

There are various factors that you need to consider such as the financial stability of the company, whether it has the capacity and resources to service you, and the processes that allow it to respond quickly and effectively, he says.

"If a customer has bought a new car or a high-valued car, we would recommend him to take a comprehensive insurance cover, which would provide insurance protection not just for liability to other drivers but also to any damage to his car," says Jane.

Going for online auto insurance is another cost-effective measure, although very few companies in the UAE are offering insurance policies online, experts believe.

"Online auto insurance makes the whole process much more streamlined. It's also a cost-saving proposition for both the insurer as well as the customer as the transaction time is reduced, says Jane.

Risks and perceptions

A clear distinction between what the actual risks are and what you perceive plays a significant role when it comes to choosing travel insurance and home or property insurance. Although home insurance and travel insurance are not compulsory in the UAE, people need to go for such covers since insurance is generally a matter of how one perceives the risk, experts argue.

However, there are various mistakes one makes when going for travel insurance. One of them is not insuring the whole family when travelling abroad. People tend to assume that since they're already covered by their company's insurance schemes they need not go for cover for all family members. It shouldn't work like that as travel insurance provides complete protection to one and all, says Jane.

"Travel insurance is designed to protect you from any unexpected incident, from travel inconvenience such as baggage loss or flight delay to emergency medical situations. Therefore, individuals who want to protect their travel investment for themselves or their family should consider purchasing this coverage. If an illness, accident or any other unfortunate incident forces you to interrupt your travel plans, you are exposed to potential financial losses, says Hunt.

He says the biggest mistake people make when it comes to travel insurance is that travellers do not read the terms and conditions of the travel insurance policy.

Home insurance, on the other hand, provides cover to both the property as well as household goods. Although home insurance penetration is very low in the UAE compared to developed markets, the number of people opting for insuring their properties is on the rise, experts believe. "One of the consequences of the global financial crisis is that people have become more risk averse. They now understand that unexpected events can happen and it pays to be prepared. This, in addition to increased awareness and changing cultural values, has increased the penetration of home insurance. We're seeing its increasing popularity from all demographics and from all segments of property owners, be it single-room apartments or large villas, says Gray.

Despite the high volume of property sales in the UAE, home insurance penetration is at an astonishing low five per cent, says Hunt. People in the UAE, whether tenants or homeowners, who have invested in freehold property, have valuable home contents and should look at insurance cover as a basic requirement. People need to realise there are various aspects to look at when buying home insurance and its innate importance in the event of a calamity, he says.

Firstly, people need to understand their liability, which differs if they are the homeowners or if they are tenants. Secondly, the customer needs to establish his/her requirements in terms of the level of cover they require. Depending on the individual, this may range from a basic cover for furniture and home appliances to a detailed one covering paintings etc. Additionally, he says, it is very important to arrive at the right sums to avoid any conflict of under insurance at the time of claim.

While choosing home insurance, going for the cheapest cover and not realising the extent of risk exposed is a common mistake, says Hunt. Underestimating the value of the household items in one's house is another mistake. Often people tend to take the value of the insurance cover less than the value of their households, without properly calculating the actual value. Secondly, people often err on what their risk actually is, says Jane.

There are a few key aspects to keep in mind while buying home insurance, says Hunt. They include who are you buying it from, whether the insurance company is rated, and is in a position to pay in event of claim, whether adequate cover is in place against all perils like fire, theft and accidental damage, claims process and deductible payable in the event of a claim, insurance company's contact details, complete terms and conditions and what documentation is required, he added.

Myths about auto insurance

- Insurance companies base their price on driver's age and nothing else

- A cheap insurance policy with low limits will cover all my costs in an accident

- Cheaper and older cars cost less to insure

- If someone driving my car causes an accident, I won't be held responsible

- My car insurance rates will be similar to my neighbour's rates

- Car insurance rates go down dramatically when drivers turn 25

Buying tips

Many insurance companies pitch on price where the real reason to purchase insurance is for the cover. Here is checklist that could help customers make a decision about their insurance company and cover:

- How does the company calculate the value of the vehicle in case of a total loss?

- How much is the vehicle depreciated every year?

- Does your company provide sufficient limits on your insurance policy for medical expenses, personal belongings and personal accident cover?

- Does the insurer use approved garages for carrying our repairs?

- Are repairs guaranteed? If so, for how long?

- Will the insurer provide you with a 24-hour breakdown service or a hire car in the event that your car needs to be repaired after an accident?

- Does the insurance company have a claims contact centre that is available 24 hours a day, 7 days a week?

- If you are a responsible and safe driver, will the insurance firm reward your claim-free status? Ask them to quote the difference between having four years no claims discount and having zero.

- How reputable is the company providing the insurance. Have they been in the industry for a long time? Are they financially stable?

- Don't feel obliged to accept the insurance offered to you at the car show room. At the very least take time to investigate the type of cover being offered as well as the company who is providing the cover.

- Does the policy cover off-road driving if you have a 4WD vehicle?

- Can you obtain a discount by taking up your policy over the phone or on the internet with a credit card?

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