With 2022 drawing to an end, it is time to reflect on what worked and what didn’t work in terms of personal finance, to be better prepared for the new year. This month, we unpack the key lessons learned in the various categories of short-term insurance, investments and medical aid.
- Short-term insurance: claims for electrical devices and building insurance
During 2022, WMD processed many insurance claims for electrical devices that broke beyond repair due to a surge in current and voltage spikes as a result of load shedding. When insurance companies approved claims for these devices, such as TVs and fridges, one of their requirements included collecting the old, damaged device. This latest requirement ensured that fraudulent claims are eliminated and reduced.
In addition, repudiated insurance claims experienced during the past year involved building insurance claims. Generally, homeowners are unclear about when an insurance company will approve related claims, and when they will be rejected on the grounds of poor maintenance. Therefore, a clear distinction should be made between these two instances. Insurance companies will only approve a building insurance claim when a sudden, unforeseen event is involved, such as flooding or extreme wind that causes damage to the structure of a home.
On the other hand, homeowners are responsible for maintaining their homes to avoid degradation over time. This includes clearing gutters to avoid water damage after heavy rain. If any structural damage to a home occurred as a result of poor maintenance, the insurance company will repudiate the claim.
- Medical aid: late joiner penalties
When switching to new medical aid, it is important that you have a record of all the previous medical schemes you belonged to from the age of 35. Over the past year we have had some instances of clients that were unable to provide their previous medical aid membership certificates due to it being so long ago that the medical aid in question does not exist anymore. As a result, a late joiner penalty is added to the member’s premium based on the number of years after the age of 35 the member did not belong to a medical scheme. These penalties can be up to 75% of the monthly premium, so therefore it is important to securely store all past medical aid membership certificates, or make sure your broker is in possession thereof.
- Investments: consider your risk profile and diversification of asset classes
A major lesson learned in 2022 following the Covid pandemic and the war in Ukraine, is ensuring that your investment strategy is properly constructed to fit your risk profile and investment term. Consider the objective for your investment and align it with a fitting investment vehicle. For example, if you panic and withdraw funds from your unit trust every time an unforeseen event (like the war) occurs, you will likely make a loss at the end of the investment term. When you decide on an investment for the next 10 years, stick to the period without withdrawing funds and review the performance once per year as opposed to every day during which performance fluctuates, especially during times of crises. Give your investment time to recover any losses experienced during a global phenomenon.
Also, ensure a diversified strategy. Avoid reading a trends piece on a specific asset class, such as listed property, and allocating all funds into one option. Consider how various asset classes fit in your specific portfolio. The following chart shows key indices ranked by performance for the past 5 years:
This is a clear example of how various asset classes fluctuate year on year, and how a balanced portfolio can benefit you.
We believe that all our clients should be made aware of the above-mentioned lessons learned to be better prepared and to allow WMD to continue assisting as best we can in the new year.