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General Principles of Insurance – Ombud

Please find below an article from Dennis Jooste on the General Principles of Insurance.

GENERAL PRINCIPLES OF INSURANCE

As a policyholder, you need to understand some general principles of insurance, Dennis Jooste, the Ombudsman for Short-term Insurance, says. These are:

* Utmost good faith. “Insurance is based on utmost good faith. When you enter into a contract with an insurer, you are asking the insurer to assume the risks that we all face in our everyday lives. The insurer knows nothing about you. Your premium is going to be determined by the insurer based on your risk profile. This is where utmost faith comes in.”

* Full disclosure. “In assessing your risk profile, the insurer relies on you to make full disclosure of all material information,” Jooste says. “This is why it’s so important that you are honest when you take out insurance, and maintain this honesty throughout your relationship with the insurer. Otherwise, come claims stage, the insurer may say, ‘but you didn’t disclose that fact to me and therefore I couldn’t assess the risk properly’.” Also bear in mind that insurers share information, he says. The consequences of material non-disclosure at application stage is that your policy becomes “voidable”, resulting in you having no cover when it comes to light that you did not make full disclosure.

* Insurable interest. You can’t insure something in which you don’t have an interest. “If you own something, you have ‘an interest’,” says Jooste. “For example, when adult children move back home and bring with them their own assets, which they don’t bother to insure, problems arise. They assume their assets will be covered by their parents’ insurer. The bad news is they are not covered by dad’s insurance, because dad doesn’t have an insurable interest in the property.”

* The “average” clause. This requires that you insure your assets at their full value. If the sum insured at the time of the loss is less than the insurable value of the property, the amount claimed will be reduced in proportion to the under-insurance. Jooste says most people don’t have adequate cover for their household contents and don’t realise the consequences of this. If you have household contents to the value of R800 000, which you have insured for R500,000, and you suffer a R100 000 loss, you might think you’re adequately insured. Not so, he says. Your insurer can penalise you for being under-insured and can pay you out in terms of the “average”. “In this case, it may pay you out five-eighths of R100 000. That’s how average works,” he says. Jooste says it’s important to revalue your assets annually to ensure you have sufficient cover.

There are companies that specialise in valuations and can give you a valuation for each and every item you have, Jooste says. This provides clarity on their value. “At claims stage, some insurers want proof of purchase, such as an invoice. Be aware that the onus is on you to prove your loss,” he says.

Jooste advises that you take photographs of each item in your home and save them to a disc or external hard drive.

* Enforceable contract. The policy is an enforceable contract subject to its terms and conditions, and any ambiguities in the policy will be interpreted against the insurer, Jooste says.

On taking out a motor policy

When taking out motor insurance, Jooste says you need to be mindful of the following:

* Valuation. Pay careful attention to how the insurer values your car: at retail value (the price at which a dealer will sell a vehicle to a consumer), trade value (the price a dealer will pay you for your vehicle), or market value (generally the mid-point between trade and retail). These values affect the premium you pay and what the insurer will pay out when you claim. A vehicle is a “wasting asset”, which means you need to revalue it on a regular basis, Jooste says. Although short-term insurers might soon be compelled to annually assess the value of your motor vehicle and set your premiums accordingly – rather than merely increase your premiums in line with inflation – until this happens, it is your responsibility to make sure you aren’t over-insured.

* “No water damage”. Watch out for this exclusion, Jooste says. “During a Highveld thunderstorm, I drove into a dip and the water level rose so high that it flooded my engine and blew it. Fortunately it was covered, but some insurance companies exclude water damage to an engine. So be careful of that exclusion,” he says.

* Excesses. “Be aware of multiple excesses,” Jooste says. Some policies apply multiple excesses, meaning that in addition to your standard excess others may apply. For example, young or new drivers who haven’t had a license for a certain number of years, can be liable for an additional excess. If you have an accident within six months of obtaining cover, or between midnight and 6am – the most dangerous time on the road – an extra excess may apply. And some insurers levy an additional excess on drivers older than a certain age.

Jooste’s advice: “Go home and read your policy. If there is anything that you don’t understand, ask your broker or insurer to explain it to you.”

Warm regards,

– The Tradesure Team