Short-term insurance not only gives you peace of mind, it also offers you protection over your possessions, from your house and car to your personal belongings. But in order to benefit from this protection, you need to understand how insurance works and the extent of your cover.
Fires, thefts and accidents are everyday events - and they do not just happen to other people.
To protect yourself against the financial consequences of such unexpected events, you can take cover with an insurance policy. The two main types of insurance are short-term insurance (which provides cover for possessions) and long-term insurance (which covers your life).
Short-term insurance is generally taken out on your house, your car and your belongings.
To protect yourself against damage to or loss of your possessions, you can - in return for a monthly or annual premium to an insurance company - buy insurance cover.
When you buy insurance cover, you transfer the risk (of damage to or loss of your goods) to somebody else, in this case, the insurance company.
The insurance company will assess the risk of your goods becoming damaged, stolen, or lost, and will charge you a fee, called a premium, for taking on the risk. You can generally pay the premium annually or monthly, but you usually get a discount for paying annually.
Should you be so unfortunate that, for instance, your car is stolen, your house burns down, or you lose your cell phone, and you have insured these items, your insurance company will reimburse you.
In some instances, the insurance company will pay you out in cash. In other instances, it will replace the lost item with a similar one.
The extent to which you are reimbursed will depend on the terms and conditions of your insurance policy and on whether you have adequately insured your goods.
Excess
Most insurance policies have what is called an excess. This is the amount that you agree to contribute towards the cost of every claim you make. It is also sometimes called the first amount payable. There are generally two types of excess payments: compulsory and voluntary. Sometimes an aggregation or accumulation of excesses applies. For example, in a motor policy there may be an excess added for drivers under the age of 21. So, if your son or daughter of 20 has an accident in your car, you may have to pay this excess in addition to the standard excess on the policy.
It is possible to get waiver of excess which allows you, for an additional premium, to insure your compulsory excess amount. This type of waiver insurance is generally expensive.
A compulsory excess is set out in your policy document which should state how much you are expected to pay when submitting certain claims. Motor policies tend to have more complicated excess structures, depending on the age and experience of the driver of the vehicle.
Many insurers offer a discount on the premium if you agree to pay a voluntary excess when you claim.
Conditions and exclusions
You should take particular note of any exclusions in your insurance policy. It may be possible to get cover for the things that are excluded, if you are prepared to pay a higher premium, so check with your insurer. For example, the theft of clothes from your washing line may be excluded from household insurance, unless you specify that you want cover in such circumstances.
Policies also contain conditions. For instance, your household contents may not be covered against theft if you do not have burglar bars or an alarm system installed at your house. Or your car may not be covered unless it has a vehicle tracking device. It is important to read the conditions so that you are not disappointed when it comes to a claim.
Self-insurance
If you choose not to take out short-term insurance on your goods and belongings, you are essentially insuring yourself. If an individual mistakenly or by choice underinsures his or her goods, the person is basically self-insuring for a percentage of the risk.
Vehicle insurance
You can insure your car against accident, damage and theft. Car insurance tends to be expensive. Your premium is determined by the value of your car.
When your car is damaged or written off (completely destroyed), the insurance company will pay out an amount according to a predetermined scale of values, taking into account the make and model of your car, the age of the car, its condition and replacement value.
Household and homeowners' insurance
If a bank is giving you a loan to buy a house, it will normally insist that you insure the house against destruction by fire or storm. The premiums for this insurance - called homeowners' insurance - are normally included in your monthly home loan repayments. Homeowners' insurance covers only the structure and fixtures in your house.
If you want to insure the contents of your house (household insurance) against loss or destruction, such as a fire, you need to insure the contents separately from the structure.
Cancellation of policies
Many people who have insurance cover are unclear about the rights of the insurance company to cancel their policies. They may think that an insurer can only cancel a policy either if they stop paying premiums, or if there is a breach of the policy terms and conditions. An insurance policy is a contract like any other legal agreement. A contract gives either party the right to cancel after giving notice. This right to cancel can be exercised without giving any reasons and without having to rely on any breach of the policy.
Even if you have paid your insurance premium annually in advance, the insurer has the right to cancel your cover although it may be obliged - depending on the terms of the policy - to refund you a portion of the premium that you have paid. If you have received an insurance payout during the period you were covered, you may not be entitled to a refund of a portion of your premium.
Who's who
You may come into contact with various people and organisations when you buy insurance cover. You can take out an insurance policy through a broker or an intermediary who is also supposed to assist you with any claims that you make on your policy.
Some insurers sell directly to the public and cut out the broker, so you can approach them directly.
In either case, it is important to know who the insurer (also known as the underwriter) of a policy is. In fact, the underwriter's name must appear on your policy document. The underwriter is the company that carries the risk for paying out for any claims you submit.
You should not confuse a broker with an underwriting manager, although some brokers are also underwriting managers. The underwriting manager is the authorised agent of the insurer. He or she acts on behalf of the insurer in receiving policy proposals, accepting them, issuing policy and handling claims.
Your insurance company may appoint a loss adjustor to investigate your claim. A loss adjustor is used to describe different, but related professionals, including motor assessors, claims adjustors and insurance inspectors. The loss adjustor may ask you for documents and information relating to your loss.
Help is at hand
If you have a problem with your broker or insurance company and cannot get it resolved with the broker or the company, contact Helm van Zijl, the Ombudsman for Short-Term Insurance:
Toll free No: 0860 726 890
Tel: 011 726 8900
Fax: 011 726 5501
Postal Address: P O Box 32334, Braamfontein, 2017
Email: [email protected]
Source: The South African Guide to Short-term Insurance (Butterworths)
Part 38:
Household and Homeowners' insurance