Insurance 101

Taking out insurance of any kind is not an undertaking that should be taken lightly. After all, making sure that your most hard-earned possessions are covered in the event of accidental damage or loss is no small matter.

Many people try and navigate their insurance needs on their own, which can be a tricky process where flaws are only revealed at claims stage. “Unless you have the time, skill and insurance knowledge to do thorough research of your own, you should seek professional insurance broking advice because comparing product benefits, technical specifications, terms of cover and pricing simply isn’t straightforward. By choosing to deal with an insurer directly, you effectively assume the role of your own advisor, usually without the necessary specialised knowledge or the benefits of a long-standing business relationship with underwriters,” says Mandy Barrett of Aon South Africa, a leading global professional services firm and insurance broker.

“The advice and guidance of an expert broker will be invaluable in helping you decipher the insurance lingo, and they will do a thorough needs analysis at the outset to ensure that your cover is tailored to your specific requirements and circumstances. Your broker will also point out any potential pitfalls or conditions of cover to ensure that you’re not left wanting when it comes to claims time. It’s in your best interests to get professional, qualified advice and get your valuable assets from your car to your home and everything in-between, insured correctly from the outset, to avoid the inevitable costs of hindsight,” explains Mandy.

When obtaining an insurance quote, it may seem like you’re drowning in an alphabet soup of terminology, but once you understand the key terms and why they are so important, it all becomes a lot clearer. Aon provides an overview of some of the most common, and important insurance terms that you may encounter in your insurance dealings:

• Insure for the retail value of the car - Ideally, you want to be in a situation where your insurance can replace ‘like for like’ and avoid being paid out less than the value of your vehicle. Essentially, retail value is the price at which a car dealer will sell a vehicle to you. Market value is the average of the difference in price between retail value and its trade-in value, in other words what you could expect to receive from a dealer if you were to trade the vehicle in. Always ensure your vehicle at retail value.
• The Average Formula - If you are under-insured in the event of a loss, the insurer will assume that you have elected to carry a portion of the risk yourself. As a result, you may find yourself in a situation where you are paid partially for a loss at claims stage due to the average formula being applied. It means that if your property is under-insured by 40%, for example, then you may only be paid 60% of your claim, regardless of whether it is a partial or total loss.
• Credit Shortfall Insurance – An often, overlooked risk is that of a credit shortfall on a financed vehicle. This typically arises when a vehicle is written off in the first two years of signing a finance agreement to purchase a new car. Accrued interest on the loan within the first few years may very well mean that your insured value of your vehicle could actually be less than your outstanding debt to the bank. If you don’t have credit shortfall cover to settle this amount, you will be liable for the shortfall between what’s owed to the bank, and your insurance settlement which does not cover you for the interest.
• All Risks Cover – Household contents cover is usually applicable to items that stay within your home. As soon as an item is taken outside of your home such as jewellery smartphones, laptops, sports equipment, designer sunglasses or luggage, these items are no longer covered. It is pertinent to specify these items that may ‘travel’ with you under the ‘All Risks’ section of your household contents policy.
• Excess – In most insurance policies a claim is subject to the payment of an ‘excess’ (sometimes also called a ‘deductible’), which refers to the first portion of the claim that you are responsible for. In the insurance world, it translates into you taking on a portion of the financial risk that affects your insurance premium whether it is a fixed amount or a percentage of the claim. Be very wary of taking the lowest premium as the bite is often in the high excess structure – in some instances this can be as much as 25% of the insured value or a fixed fee - whichever is the greater. If you consider a claim value of R100 000, the excess at 25% would be R25 000 – very few people have that kind of spare cash around to cover their excess payment. Taking excess waiver cover could also be an alternative option to consider. Make sure to discuss your excess options with your broker.
• Wear and tear - wear and tear and other maintenance related losses are one of the key reasons for a claim being rejected or the settlement being less than expected. Remember that insurance is there to cover sudden, unforeseen circumstances which result in loss and/or damage and does not cover damage as a result of negligence or wear and tear. Examples of wear and tear include rising damp around your house, water leaks that could lead to major structural issues on your home, making regular maintenance on your home, a must.
• Safety measures – Your insurance cover may be subject to certain security measures that need to be in place, such as burglar bars on all opening doors and windows, a tracking device on your vehicle or arming your alarm system when stepping out. The last one becomes a bit tricky during load shedding, making it crucial to confirm with your insurer whether your cover will be in place if a crime occurs during load shedding.

“Interrogating the terms and exclusions that are applied to your insurance, is a task best undertaken with the aid and support of an experienced broker by your side. An expert broker can add tremendous value in the advice process and guide you towards a thorough understanding of the terms and conditions of your cover, making sure that you are not compromised or prejudiced by unreasonable limitations on the cover. A broker would always point out terms in a policy that applies onerous or unreasonable limitations, that will go a long way to ensure that you have no surprises waiting for you at claims stage,” concludes Mandy.