Understanding your insurance policy contract means understanding your rights

Most South Africans understand that insurance is needed when buying items such as a car or a house.

“Despite the importance of insurance, very few people really understand what they are signing. Fewer are WalletWise and ask for the wording of a policy contract to be explained”, says Dr Hardy Ncube, Head of Personal Products at Standard Bank Insurance. 

“In the current economic climate, many buyers are primarily concerned with the affordability of the monthly premium,” he says. “But understanding the terms and conditions in an insurance policy contract is vital. They set out what the policy covers, how it is administered and the benefits that can be expected.”

Some of the most common terms to be found in an insurance contract are:

• An excess, also known as the ‘first amount payable’ or deductible, is the amount a customer must pay out of their own pocket when they have an insurance claim.  Excesses are normally applicable to insurance cover for insured property (such as vehicles, buildings, valuables and contents) and the amount is agreed upfront between the insurer and the customer. The amount of an excess often depends on the sum insured, type of assets or valuables being insured, a person’s prior claims record or even age. The excess amount may have a significant influence on the premium payable: the lower the excess, the higher the premium and vice versa. Having an excessively high excess can be problematic in future in the event of a claim occurring.  The client may not have enough cash to pay it, and this may result in delays in finalising the claims by the insure. There instances where the customer can elect to waive the excess but in return for a higher premium. A customer must choose an excess structure that is sufficient to keep monthly premiums down, but not too high to cause financial burden in the event of a claim.
• A no-claim bonus – also known as a no claims discount – is different to the cash back benefit and could provide a discounted premium if a customer has a good claims history.

• A cash back bonus is paid out after a set period of time, usually three years, provided the customer has not claimed during the period.
• An exclusion clause tells you clearly what your cover entitles you to. If you don’t know what is excluded, you could find yourself submitting a claim only to have it rejected.
• An escalation clause enables the insurer to increase the sum insured (and the related premium payable) on an insured property each year, in line with inflation. This ensures that the value of the insured property or benefit is not diminished by building-related cost inflation. A good example is a house that was bought many years ago: inflation increases its value, but if the original sum insured does not change, the homeowner could be left with a massive cash gap, as the property would not be fully covered.  It is important to note that the final sum insured remains the customer’s responsibility.
• The limit of liability is the maximum amount a company will pay for a single loss for an insured item or event. This means that if there is a claim, any amount higher than the limit mentioned in the policy will not be paid. Most policies will stipulate that an assessor can be appointed to act for the company. This person assesses the damage to an insured item and whether the quote for repairing or replacing an item is valid.
• Arbitration takes place when a claim is lodged, and the company rejects the claim. The insured can then make a formal complaint and the matter is judged by a neutral person, called an Arbitrator, who makes a ruling on the dispute.
• Indemnity means the right of the customer to be restored as closely as possible to the financial position before the insured loss happened, if the sum insured is sufficient.

“The more comfortable people are with the terms used in an insurance policy contract, the less chance of conflicts arising between the company and the insured. Taking the time to read and understand the insurance contract will be worth every minute spent,” says Dr Ncube.