When Mr Y o Y bought a car, he was referred to me to do his insurance. The first time we met, he was still waiting to get the car and he told me he only has a learner’s licence. I warned him about driving without a “chaperone” and he said he is well aware of it. I got all the info and with a bit of trouble got him a very good package.
Then we had to sign the documents and we met in a coffee shop – he drove there with his chaperone! I warned him that it is very high risk, but he just smiled. Then he asked me if we could make the inception date of the policy 1 month later. Obviously we can, and since cash flow is a problem, it is probably best. Once again I warned him about driving a car that is not insured and he smiled and assured me that he drives very carefully.
Two weeks later I receive a fax asking me to cancel the policy. Three days after signing the documents, he had an accident – the damage is R60 000. He fought with the insurance company, because they refused to accept responsibility, after all, he did not have insurance! So he already owes more than R100 000 on the car and he borrows another R60 000 for repairs.
Why cancel the policy? Because with all the debt he cannot afford the insurance premium!
“Mr Y o Y, you understand that the problem is getting bigger? If you now have another accident, you will once again have to borrow more money? The insurance premium is cheaper than the debt and the possible financial ruin.”
“Yes, I understand, but I will drive carefully. But I cannot afford the premium right now.”
Why does that sound so familiar? I am sure I heard that one before! And the worst part? He will not even consider third party insurance to cover the damage to somebody else’s property, should he cause an accident! That could easily run into millions!
Remember: protect wealth before you build wealth! Then invest for income. Then invest for capital growth.