By Marius Kemp
Your short-term insurance contract can often seem overwhelming in its complexity, and particularly frustrating when a claim is not paid out in full or even declined.
It is essential to understand the type of cover you have versus your needs. Having adequate insurance cover that is relevant for your needs is key. This will help alleviate the financial burden of getting back on your feet should an incident occur.
In addition to understanding the type of cover you have in place, it is crucial to get up to speed on the claims requirements and any exclusions in your policy and a professional insurance broker can assist with this.
There are certain areas of cover and terminology that tend to consistently come up as sticking points for consumers when it comes to getting their claims paid.
Below are five of the most common pitfalls we see that consumers overlook when it comes to the terms and conditions of a short-term insurance policy.
Underinsurance: In short, you are underinsured when you insure your assets for less than what is required to be able to be in the same financial position as prior to your misfortune. The insured value of your contents, building, or item you are insuring must be equal to the current replacement value, not the original purchase price or current market value. If you are underinsured, you won’t be paid in full when you claim. As an example, if you insure for only 50% of the replacement value, then you will be paid only 50% of the loss in accordance with a principle called “averaging”.
Calculating the replacement value of your building, contents or item is easier said than done. Insurers have therefore made different tools and services available to help you during the evaluation process, such as inventories, professional evaluator services, and online calculators.
Using these tools and insuring for the suggested values, will usually mean that your insurer will scrap the average condition and you will then have the assurance that any claim, big or small, will not have the average clause applied to the claim. Especially on home contents, replacement costs often are much higher than you may think. The small additional premium you pay for what seems to be inflated replacement values is well worth the burden to ensure the replacement of assets you had when you suffered a loss.
Excess: An excess is the agreed amount of money you pay as a contribution towards repairs or replacements and is the first amount payable by you, the client in the event of a claim. While these excesses are highly differentiated in the insurance market, an excess amount is applicable to most short-term insurance policies, and it is explicitly stated in all policy documents.
It pays to read this part of the policy contract carefully, so you do not get a shock when it comes to the claim stage. In some cases, clients can also adjust excesses (reduce or increase) to suit their needs, and in doing so pay an adjusted premium.
Limitations and Exclusions: No insurance policy will cover all losses. However, most insurers will know what the market needs are and provide appropriate cover to be competitive. Limitations and exclusions are largely there to ensure affordability and to manage the risk, with an option to buy additional cover at a premium in certain cases. Some conditions relate to high or unacceptable risks i.e. theft or burglary, and a home alarm or a vehicle tracking device needs to be installed.
With especially motor insurance, exclusions are one of the main pitfalls. Claims for mechanical or electrical breakdowns are not covered under a normal vehicle insurance policy and require a vehicle warranty policy. Cover for car hire may need to be added, or extras fitted to the vehicle may have to be insured separately.
Be sure to check that your policy covers multiple drivers of your vehicle and make sure you have declared the use of your vehicle correctly for either business use or private use. In addition to the exclusions stated on your policy, you also need to inform your insurer of any material changes, such as a change of address or a change in the regular driver of a vehicle.
All-risks insurance: This mostly refers to items that are portable, such as jewellery, cameras, laptops, mobile phones, or tablets. As a norm, if not specifically insured, these are generally still insured under your house contents policy, but only when they are at your home address. High-value items that can be removed from the risk address should be specified separately to ensure cover away from your home address.
In recent years there have been developments with regard to the way cover is provided while contents are not at home, be it while at work, a child who is a student and living away from home, while travelling, and in general. The cover available in the market can differ substantially, so it is important to consider a scenario where your assets are not at home and test the policy cover against your needs.
All-risks insurance normally carries a higher risk and is therefore more expensive. So be selective on which items you insure in this way by prioritising according to these aspects:
- Monetary value
- Risk exposure (nature (high/low risk) of an item lost or damaged)
- Personal liability: This refers to insurance against a third party suing you in your personal capacity for financial loss incurred, physical injury or death. The most common form relates to your house-owner’s insurance, covering the structure of your home and its permanent fittings and typically includes medical costs, restoring or replacing damaged property, pain and suffering to the injured party, loss of income, legal costs, and expenses.
Standard cover for personal liability is between R2m and R5m, but this may not be enough to cover you from financial ruin if someone does claim against you. Most insurers, therefore, offer top-up cover at a low additional premium, extending your basic cover to R10m or even R20m as in the case of Santam. As the chances of you claiming are very low, extended cover is highly affordable and probably well worth it.
* Kemp is the head of personal underwriting at short-term insurer, Santam.
PERSONAL FINANCE