Cheaper is not always better

Cheap Insurance quotesAdvertisers have conditioned clients to focus on costs, which is generally a good idea. However, sometimes that is the wrong focus point.

For instance, if a short-term insurer promises the cheapest rates for cover, clients could be tempted to sign up without realising why their premiums are lower.

Company A:

  • Charges a monthly premium of R650
  • They have an excess per claim of between R6 000 and R10 000
  • They don’t offer a replacement vehicle while yours is being repaired
  • You may also lose your no claim bonus, regardless of whether or not your actions caused the accident.

Company B:

  • Charges a premium of R750 per month
  • Their excess per claim is between R3 000 and R5 000
  • You are given the use of a replacement vehicle, similar in make and model to your own, for 30 days
  • You also won’t lose your no claim bonus if you have a “no fault” claim.

So, while B will cost you R3 600 more over the course of three years, a claim will put you in a better position than you would have been if you had signed up with A.

The same goes for unit trust investments. A client may quibble about paying an additional 0.5 percent per annum in fees for an actively managed portfolio. However, an actively managed fund, while initially more expensive, will have better diversity. Which in turn reduces the risks linked to an unstable economy.

Over a five-year period, the client could lose nearly 10 percent of their investment to lower returns by using the cheaper option.

Cost is an important factor to consider, but it shouldn’t be the only factor. The benefits you gain are far more important than the monthly cost, and in many circumstances, will justify the extra fees.

After all, you usually get what you pay for.

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