Lately I’ve had a lot of time on my hands so I decided to update my financial planning “skills”.
Like so many people I know who read the Bible…I opened up the book somewhere in the middle, picked a spot and started reading…
The topic was indemnity and non-indemnity insurance, and it begs the question…
What exactly is Indemnity insurance then?
Simple…indemnity insurance compensates you for a loss which can be measured in financial terms.
Your R500, 000 Mercedes Benz is totalled in an accident (Don’t worry, it wasn’t a major accident…you bumped the car infront – two airbags popped – and they wrote the car off!).
You’re insured for R500, 000 and the insurance company pays R500, 000 because that’s the book value of your car.
The insurance company wants to put you back in the same situation as you were before the loss (although they fail at this as well, since the value of a similar Merc is now R700, 000!).
This means they don’t want you to make a profit from the loss or to suffer a further financial loss on top of your loss (you get my drift?).
Why is this important?
From a legal perspective it’s important.
Let’s take indemnity insurance for instance…
Your household contents are, for some or other reason, insured with two insurers. The one insurer can claim a proportionate amount from the other insurer involved in order to settle your claim. That’s because home insurance is classified as indemnity insurance, and remember…they don’t want you to profit from this loss!
This can’t be done with life insurance which is an example of non-indemnity insurance.
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Until next time.
The InsuranceFundi Team