Dont Give Up Your No Claims Bonus

January 4 - Of late there have been many reports of insurance companies offering clients the choice of reducing their monthly insurance premiums in exchange for  for forgoing their no claims bonus.

Now, this is a very interesting point because most people are very tempted to go for lower premiums versus a no claims bonus because they figure that in the long-term they will save more money through paying lower premiums than they could expect to receive back in a no claims bonus.

However, never underestimate insurance companies because they employ extremely highly-paid actuaries whose sole job it is to number crunch and come up with the most financially viable scenarios, always in the favour of the insurance companies.

Let's look at an example. The South African insurance industry standard for a no claims bonuses is around 25 per cent of the total premiums paid over four years.

So say that your insurance company offers to lower your monthly premium by R50 each month in return for wavering your no claims bonus.

Over four years you would in effect save R2400 thanks to paying lower premiums. However, if your monthly insurance premium was R450 over four years, your 25 per cent no claims bonus would come to R5400.

Can you see the difference?

The above example demonstrates why you should hang on to your no claims bonus. However, replace the numbers in the above example with your own figures and see for yourself which the better option would be.

As necessary as insurance companies are in our lives, never forget that they are in business to make a profit so always ask your insurer as many questions as you like if you are unsure of anything.