Ever heard the joke about the topics you should never discuss around a bar table?
Bring up the topic of medical aid for instance, and you’ll hear a hundred complaints (Okay, I know medical aid isn’t insurance but it’s close enough). Talk car and home insurance and you’ll hear about how someone has paid years and years without ever once claiming only to have their first claim rejected.
Have you ever had one of these problems with insurance?
- Maybe you had a claim rejected?
- Or maybe you once submitted a claim and only half the claim was paid?
- Or maybe instead of replacing the old cellphone with a new one, they took the old one in for repairs?
So how can you avoid frustration with short-term insurance?
The first thing we need to do is get some street smarts around 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. Insurance companies have hundreds of years of experience in closing up the loopholes. You better know the contract as well as them. An important thing to understand is indemnity.
Why is indemnity important?
The objective of indemnity is to put you, in the same position you were in, immediately before your loss occurred.
Insurance is not there to place you in a better or worse position than you were before.
Let’s look at an example:
- You suffer a lightning strike and your TV conks in.
- You have a valid claim under the household content section of your home insurance policy.
- You happen to have a 5-year-old standard issue 54cm LG set (The one with the cathode ray tube).
- Your insurance company will replace it with a similar 54cm unit or pay you the equivalent in value.
- No way will you get the 72 cm LED version or for that matter, the 32 LED cm version.
Does indemnity imply that you will be indemnified for everything you lose?
Not unless you have the correct cover in place to deal with each type of loss.
Again, let’s look at a real-life example of how this would actually work at claim stage.
- In order to qualify for a bond, your bank insists you take out buildings insurance. They have a financial interest in the property, so they need to make sure their asset is protected, right?
- Homeowners insurance (No need to thank me Outsurance!) covers the actual brick and mortar of your home (the building structure).
- You decided not to insure your furniture under the House contents insurance section.
- A fire breaks out while you are away on holiday and your home goes up in smoke (Well, first flames and then smoke).
Would they pay for everything?
No. Your home owner’s policy (which covers the building) would take care of replacing the structure as long as you’re insured for the full amount, but your furniture wouldn’t.
You also need to know about this
Your insurance is on a valued policy basis which means that in terms of your contract, the insurer (them) and the insured (you) agree beforehand on the maximum value to be paid should the particular asset be destroyed or stolen.
That is why it’s crucial that you keep insured asset values updated with your home insurance company!
Can you force your insurer to replace with a brand new item?
No. If you read the fine print it will usually give them the following options:
Your car is written off because they think it’s uneconomical to repair. The car is worth R60, 000 but replacing one airbag will cost R30, 000. The insurer offers you a cash settlement based on the agreed value of the vehicle.
You are involved in a minor fender bender. Total damage is R6, 000. Value of the car is R60, 000. The car is economical to repair and they repair the vehicle.
Your laptop drops off the desk in your haste to get to your mid day meeting. Smash, crackle and pop. The Dell is dead – Viva HP! Instead of paying cash, a replacement item is sent because the same model is still available for purchase.
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
- You won’t be covered for a loss unless you are insured under the correct section of your policy
- Keep your values updated as this is the basis of your policy
The InsuranceFundi team
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