Short-term and long-term insurance – what’s the difference?
Posted on 23 Aug, 21 by BrightRock
What is insurance?
Insurance is a promise. It’s an agreement where the insurance company promises to pay out a sum of money to the insured person if a specific event happens. In return, the person pays a regular premium – usually, monthly. If the person doesn’t pay their premiums, then the insurance company won’t be able to pay out.
Short-term insurance protects your belongings, like your house and car
Most people know about short-term insurance, where you insure your valuable belongings such as your car or home. If the insured item is stolen or damaged, your insurer will pay you money to help you cover the cost of replacing or repairing it. Short-term insurance is usually renewed every year.
Long-term insurance protects you and your body
Long-term insurance protects something even more valuable than your belongings. It covers your life or your ability to earn an income. Long-term insurance policies include policies like funeral cover, life insurance, disability cover and income protection. These policies are taken out for a much longer period, usually at least five years but often for as long as 20 or 30 years, or more. Most long-term insurance policies only come to an end when you retire or when you die.
Long-term insurance safeguards you and your family from the financial uncertainty that comes with life-changing events in life, such as serious illness, disability or death
If you become seriously sick or injured and you can’t work anymore because of it, you can claim against your disability or income protection cover. The money you get paid out will help you afford your living expenses. Depending on what cover you have, you might receive a cash lump-sum or a monthly income payment from your insurance company. If you die, the insurance will pay out to the people that you chose to receive the money. These people are called your nominated beneficiaries.
Insurance companies must be properly registered and licensed
Both short-term and long-term insurance companies must be registered with the Financial Sector Conduct Authority (FSCA). You can check whether an insurance company is registered by going to www.fsca.co.za for this information. They must comply with strict laws, including the Short-term Insurance Act for short-term insurers and the Long-term Insurance Act for long-term insurance. There are also specific Policyholder Protection Rules that aim to protect you as a policyholder. What’s more, most insurance companies subscribe to Ombudsman schemes. An Ombudsman is an independent official who helps the public by investigating their complaints against companies – in this case, insurance companies.
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