Some Insurance Lingo You Need To Know
Have you ever looked at policy contract and thought to yourself, “I don’t know what some of this stuff means? It might as well have been written in Swahili!” The problem is that insurance
is a contract and as much as you don’t like reading it, when it comes to the crunch it’s the contract that the insurer is going to revert to.
We have no intention of transforming you into a legal expert, in the field of insurance wording terminology, but it would make a little sense if you took some time out to pick up some of the lingo.
In this article we are going to look at Indemnity & Excess
can be defined as the placing of the insured, after a loss, in the same financial position in which they were, immediately prior to the occurrence.
And this really is the premise of insurance
- to provide compensation for the loss sustained and no more. It’s not the intention of insurance to allow the insured to profit from the claim.
Ok, so let’s look at an example.
John has a Samsung S4 cell phone and the insured value of the phone is R6000. John’s phone is stolen and he puts in a claim with his insurer. It’s a valid claim and after paying his excess of R500 the insurer delivers another Samsung S4 to John’s office.
John didn’t get the new Samsung S5 or the new snazzy Galaxy Note, he got a like for like replacement.
His insurance isn’t in place to provide him with an upgraded phone, it’s in place to provide compensation for the loss sustained and no more.
John didn’t gain from the loss, he just got out what he had originally lost.
We all know what an excess is, right? It’s the money we need to pay to the insurer before we get the repaired or replaced goods back, after our claim. But why do we pay an excess? In actual fact, an excess is the policyholder’s acceptance of liability for a part of the loss that has arisen under their policy.
It’s the insurers’ way of saying, “John it was your responsibility to look after your phone, we understand it was stolen but as acceptance of liability you need to pay the first R500 of the replacement phone.”
Excesses are also in place to look at reducing the policy premiums. If you decide to take on more acceptance of liability (pay a high excess), then in return the insurer will look at reducing the premium they are charging you to accept the risk.
School is out, we hope this helped a little. Remember to ask good questions when taking out your insurance policies.
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