What you need to know
Insurance can be confusing
But with the help of your broker it can be made very easy. For your convenience here is some insurance jargon in laymen's terms.
Insurable Interest:
To have insurable interest in an item a person must stand to suffer direct, measurable financial loss if the item were lost, damaged or destroyed. The person must stand to benefit from the continued, unharmed, existence of the item, or, be prejudiced by its damage or loss or liability, which may arise.Average:
An insurance principal which has caused more disconnected clients in the insurance industry than any other, yet the principal is a simple one and is easy to understand. If an item, or property is underinsured, the insured must bear the ratable proportion of each and every loss. Eg. A machine is insured for R10 000. The actual replacement value is R20 000. If the machine was damaged in a fire, to the value of R5 000 in repairs, the claim settlement would be calculated as follows : Value at Risk: R20 000; Sum Insured: R10 000; Amount of loss: R5 000Amount payable = sum insured x Amount of loss
Value at risk
= R10 000 x R5 000
R20 000
= R2 500
The amount payable is R2 500. The reason that average is applied is to avoid underinsurance, to obtain a full premium for the risk the insurer is carrying and to ensure that each party bears their fare share of the loss.
Excess:
Also known as first amount payable. This is used as an underwriting tool in order to minimize small, administratively expensive, claims. Or to reduce the loss ratio, and to impose duty of care on the insured. Excesses are sometimes requested by the insured as a method of self-insurance. Eg. Discounts on premiums may be allowed if the insured elects to accept a higher excess.Voluntary Excess:
To reduce the premium the client may choose to pay a part of the cost of loss or damage in addition to any first amount payable which may apply.Additional Compulsory Excess:
An underwriter may impose an additional compulsory excess when underwriting a risk, the additional compulsory excess is over and above the basic excess which may apply. Also known as first amount payable.No Claim Bonus / NCB / CFG
A system of rating a comprehensive motor policy, whereby the premium is decreased by a given percentage, if the insured does not institute a claim in terms of the policy during the specific period of insurance. The CFG is dependant on the number of consecutive years a client has been comprehensively insured without making a claim. Eg. If a client has been comprehensively insured for 3 years without claiming, he would qualify for a CFG3, or NCB3.Indemnity:
The principal of indemnity is the basis of most short-term insurance contracts. The principal of indemnity states that after a loss has occurred, the insured shall, as far as is possible, be placed in exactly the same financial position as they were before the loss occurred, subject to the adequacy of the sum insured and all policy conditions and requirements being fulfilled.SASRIA:
An association, which includes in its membership all the South-African short-term insurers, and has government participation. The function of the association is to provide cover for the perils of Riot, Strike and Civil Commotion. This includes any damage caused by acts intended to usurp authority, overthrow or influence government, or other politically motivated activities.Comprehensive Motor:
This section of the policy provides cover for loss or damage to a motor vehicle, legal liability for damage to third party property and injury to passengers, as well as certain legal liabilities not catered for by the Road Accident Fund.Third Party Fire and Theft: This type of policy provides a limited extent of cover to owners of motor vehicles. The balance of third party risk is covered, as well as loss or damage resulting from perils of Fire & Theft.
Third Party Only: This insurance provides cover for death, bodily injury or damage to property of the Third Party in motor accidents