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Broker Tip #1: General Principles of Insurance

Broker Tip #1: General Principles of Insurance

As a Policyholder, you should have an understanding of some basic principles of insurance:

* Utmost good faith.

Insurance is based on utmost good faith. When you enter into a contract with an Insurer, you’re asking the Insurer to assume responsibility for many of the risks we face in daily life. The Insurer knows nothing about you so your premium will be determined based on your risk profile. This is where utmost faith comes in.

* Full disclosure.

In assessing your risk profile, the Insurer relies on you to make full disclosure of all material information. That’s why it’s vitally important for you to be completely honest when entering into an insurance contract and to maintain this honesty throughout your relationship with the Insurer. Otherwise, when you need to claim, the Insurer may say: “But you didn’t disclose this information and therefore we couldn’t assess your risk profile correctly.” The consequences of material non-disclosure at application stage is that your policy becomes ‘voidable’, resulting in you having no cover when it comes apparent that you weren’t as honest as you should’ve been. Also bear in mind that Insurers often share information.

* Insurable interest

You can’t insure something in which you don’t have a financial interest. If you own something, you have ‘an interest’ in it. For example: when adult children move back home, bringing with them their own assets, which they haven’t bothered to insure, problems will arise. It’s likely the assumption will be that their assets will be covered by their parents’ insurer. The bad news is they won’t be because mom or dad simply don’t have an insurable interest in the property.

* The ‘average’ clause

This requires that you insure your assets at their full value. If your Sum Insured at the time of the loss is less than the insurable value of the property, the amount claimed will be reduced in proportion to the under-insurance.

Most people don’t have adequate cover for their household contents and don’t realise the consequences of this. If you have household contents to the value of R800 000, which you have insured for R500,000, and you suffer a R100 000 loss, you might think you’re adequately insured. Your Insurer can penalise you for being under-insured and can pay you out in terms of the “average” clause. In this case, it may pay you out five-eighths of R100 000. It’s important to revalue your assets every year at their most recent replacement value to ensure that you have sufficient cover in place.

At claims stage, some Insurers want proof of purchase, such as an invoice. Be aware that the onus is on you to prove your loss.  A handy tip is to take photographs of each item in your home and save them to a disc or external hard drive or to provide a copy of this to your Broker for safe keeping in the event of a loss.

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