Understand the dangerous risks inherent in insurance
Understand the dangerous risks inherent in insurance
There are a number of very important concepts that you must understand when purchasing insurance. If these aspects of insurance are ignored, YOU will not simply be wasting your money; you will be exposing yourself to even greater risk.
First and foremost, the greatest danger by far is not taking out any insurance at all.
The rule of thumb is that if you can easily afford to replace an item of property, then insurance is unnecessary. It is however where the cost of replacing a property item such as a motor vehicle is massive, that insurance becomes critical for most consumers.
Insurance is primarily a risk sharing contractual relationship between the insurer and the insured. The insurance relationship assumes that the contractual partners manage the risk by taking all reasonable precautions to protect the insured property against loss.
For example, if you don't keep your motor vehicle in good repair, such as having worn tires, the insurer will be entitled to refute a claim on the basis that you contributed to the loss in the event of a car accident. Another example would be having an accident while driving under the influence of alcohol or drugs.
The next problem is when consumers do not insure their property adequately and end up being under-insured.
The danger here is that at claim time when the value that is insured is less than the value of the loss experienced. Should you be found to be under-insured, the insurer will apply a formula that will reduce the amount paid out in the case of a claim by the percentage that you are underinsured.
There are many ways to save money on insurance premiums without cutting corners. The few cents you save today could cost you thousands of Rands in the future.
Another aspect of your insurance policy is the amount of risk you carry in terms of the excess payable in the event of a claim. The greater the excess, the more risk you carry.
Another common problem is not checking that your policy premium has been paid. The fact that the debit did not go through at the end of the month on your bank account, because of some unrelated reason, is not the problem of the insurer, it is YOUR problem. Although a short grace period is normal, most policies will lapse after this grace period and insurers will decline to pay claims filed after this.
Another issue is the timeframe you have in which to file claims. Most insurance policies insist that claims are filed very soon after an accident or loss, at least within a month. For example, in some cases such as with insurance on heavy haulage trucks, the claim has to be filed within 24-48 hours. This is so that the insurer can attempt to minimize the loss by instituting own recovery processes and deploying recovery experts.
A neglected aspect is the fact that most insurance claims require that you report a loss in the event of criminal acts to the police. Without a police report, most insurers will not pay out.
And talking of criminal acts, don't dare make the mistake of lodging a fraudulent claim, you will be found out.
Insurers are very experienced in investigating insurance claims and sifting out the legitimate from the fraud. Not only will you end up with a criminal record, your ability to purchase insurance in future will be severely restricted if not impossible.
Don't make the mistake of not understanding the terms of your policy. Although, you should insist on the terms and conditions being explained to you, the insurer has no further obligation in this regard. And you must understand the policy before signing on the dotted line.
Incredibly important here are terms that people often overlook. An example is when the policy requires a burglar alarm in working order and switched on. Neglecting these conditions would make for an extremely unpleasant surprise in the event of an insurance claim. Make sure that you comply with all the conditions of your insurance policy.
A regular review of your insurance is essential. This is very important if you are making changes to your lifestyle such as buying a new home, moving home, changing careers or getting divorced.
Couples staying together will need to make sure their joint assets are properly insured.
Ask in whose name the insurance policy has been issued? Whether people are cohabiting or sharing a house, it is important that the policy is issued in the joint names of the partners, or at least that the interest of the partners is acknowledged on the policy document. This must not be confused with the standard contract wordings whereby most family members are included on the insured's policy, because this assumes a marriage contract or a civil union.
When it comes to the issue of underinsurance a partner's additional contents in the household will obviously increase the joint value of the assets significantly. The sums insured on the policy must be adjusted to avoid reducing claims payments due to underinsurance.
Consider the question of 'insurable interest'. This may have implications in the event of an insurance claim, even if the level of cover is adequate. Establish and agree on the extent of the insurance company's liability.
Consumers should take cognizance of any possible increase in risk created by the arrival of additional household contents; examples include expensive jewellery, firearms, or artworks.
Many of the above issues and more may be affected by the principles of disclosure. It is the duty of the insured to disclose material information to the insurance underwriter to allow the risk to be assessed correctly.
"While insurers are generally relaxed in issuing policies in joint names, it remains the duty of the client to disclose this change in the risk profile, and to ensure cover is increased adequately.
Many of the above problems could be avoided if full honest disclosure is made from the beginning.
Many negative perceptions about insurance stem from disappointments at claim stage, because consumers were less than candid about their insurance requirements with their broker.
Sure there are instances where brokers and insurers can be held liable for not acting professionally and fairly, and we are lucky to have consumer protection institutions in South Africa such as the FAIS and Short Term Ombudsmen, but non-disclosure of material facts that could influence the purchase of the insurance product are the main reason why insurers do refute claims.
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