Protect yourself against your biggest risk!

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Mention the word “insurance” at any family lunch and you could find yourself banished to the laundry room to enjoy your dinner with Snoopy the miniature poodle.

So what is it about insurance, specifically the short term variety of cover, that gets everyone, including your immediate family, so hot under the proverbial collar?

I’ll tell you what the major gripe is. You pay and pay your premiums and when you claim there is always an issue! “Forget the Super 14 Sharks franchise, bloody INSURANCE SHARKS will give you a tougher fight at claim stage.” Sound familiar?

It might have been that you’ve had a few claims repudiated or you’ve been short changed in the past. It could be that right from the start your insurer has decided you don’t have a valid claim and didn’t even entertain your request.

So how can we all avoid further tears, frustration and pain when it comes to your short term insurance related matters? The first thing we need to do is educate ourselves on these matters.

So let’s start right at the beginning and in this blog post concentrate on one of the principles of insurance law. Why you ask? It’s simple really. Insurance is a legal binding contract entered into by two willing parties, and both have to live up to their end of the bargain.

So there is really no better place to start than with the following key insurance principles:

Indemnity – Compensation for damage or loss.

Apart from the principles governing all contracts, insurance is also governed by its own unique principles, and indemnity is perhaps the most fundamental of them all.

The objective of indemnity is to put you, in the same position you were in, immediately before your loss occurred. Not to place you in a better or worse position.

Don’t lose me now. Let’s have a look at an example of how this would work in practice.

You suffer a lightening strike during a Gauteng thunderstorm and your TV is completely damaged as a result of the power surge. This is an insurable peril and you have a valid claim under the household content section of your personal lines policy. You have a standard issue 54cm LG set (you don’t really fancy the couch potato thing). Your insurance company will replace it with the same standard issue 54cm unit. The point is that you are placed in a no worse or better position than before the incident.

You couldn’t expect the insurer to drop off the latest Sony LCD flat screen as a replacement, could you?

Does indemnity imply that you will be indemnified to the full value of the loss?

The answer is no, unless you have proper covers in place to deal with this type of loss

Again, let’s look at a real life example of how this would actually work at claim stage.

As a requirement your bank insists that you have a traditional home owner’s policy in place. They have a financial interest in the property, so they need to make sure their asset is protected. This policy covers the actual brick and mortar of your home (the building structure). You decided not to insure your household contents. A fire breaks out while you are away on holiday and your home is completely gutted. It has burnt to the ground -nothing left but the smoldering DSTV satellite dish.

Would you be indemnified to the full value of the loss? No you wouldn’t. Your home owner’s policy would take care of the costs of replacing the structure of your building but the actual home contents would not be covered because it needed to be insured separately.

You will not be indemnified for a loss unless you are insured for that specific loss.

What you also need to know about indemnity is that it based on a valued policy basis which means that in terms of your contract, the insurer and the insured (that would be you) agree before hand on the value to be paid should the particular asset be destroyed or stolen.

That is why it’s crucial that you keep insured asset values up-dated!

Indemnity can be achieved through the following methods below and this is the basis for how insurers handle almost all claims today.

Examples:

Cash Settlement

You are involved in an accident and your car is deemed to be uneconomical to repair. The insurer offers you a cash settlement based on the agreed value of the vehicle.

Repair

You are involved in a minor fender bender. The car is therefore economical to repair and the insurer will go ahead and repair the vehicle.

Replacement

Your laptop drops off the desk in your haste to get to your mid day meeting. Smash, crackle and pop. The Dell is dead. Instead of paying cash, a replacement item may be tendered and you will receive a new notebook.

Ok, that was a quick overview of short term insurance indemnity.

Let’s recap before I sign off

Insurance is there to place you in the same position you were in before your loss.

• You will not be covered for a full loss unless you are insured for a full loss
• Keep your values updated as this is the basis of valued policy covers

I would love to hear from you, so feel free to leave your comments. In the next motor & household blog post I am going to be shifting to what your insurer’s obligations are. So don’t miss it.

Brendan Els

Related posts:

1. Are You Making This Mistake When It Comes To Contents Insurance?
2. How On Earth Do Insurance Companies Make Money?
3. Short & long term insurance. What’s the difference?
4. Insurance Companies…Are They A Bunch Of Thieves?
5. Are You Willing To Risk Your Hospital Bills Not Being Paid In Full?

Tagged as: Short Term Insurance