Insurance

• What is Insurance?

  A Contract of good faith taken out between an insurance company and an individual/business.

  • The insured pays a monthly premium. Main aim is to provide protection for assets, INcase something happens.
• Assurance

  Taken out for a risk that is certain.
• Non-compulsory insurance

  • Fire insurance
  • Liability insurance
  • Crop insurance
  • Group life cover
  • Loss of income insurance
  • Vehicle Insurance
  • All-weather insurance and damage and theft insurance
  • Insurance of money in transit
  • Fidelity Insurance
• Fire insurance

  • Excludes fires caused by volcanoes, earthquakes, riots/wars
  • Premium charged depends on risk and value
  • Risks refers to nature of product, availability of fire extinguishers, nature of adjacent buildings and construction
  • Insurance company must be informed immediately if a fire broke out
• Liability insurance

  • Covers people who become liable for losses caused by their negligence or defects on their property
  • Example: public liability policy
• Crop insurance

  • Taken out by farmers
• Group life cover

  • Business insures their workers for an amount equal to twice their annual salary
  • Should the worker pass away, their family will be paid out this amount
  • Premiums are lower as larger number of people covered which reduces risk
• Loss of income insurance

  • Policy covers people who are unable to work for a period of time and therefore lose their income
• Compulsory insurance

  • Unemployment Insurance Fund
  • Compensation for Occupational Injuries and Disease Act (COIDA)
  • Road Accident Fund
• Unemployment Insurance Fund

  • Fund administered by Department of Labour
  • Covers employees against loss of income if they do not have a job, e.g. through retrenchment
  • May not claim if employee quits job
  • Employee may claim if he/she was fired or the contract terminated
  • Contributions made by both employer(1%) and employee (1%)
  • Payable by all employees regardless of the salary earned
  • Domestic workers also covered
  • Public servants, foreigners on contract and people employed for less than 24 hours per month and those earning commission only are excluded
  • Pregnant women can receive benefits for 17 weeks
• Compensation for Occupational Injuries and Disease Act (COIDA)

  • Taken out by employers to protect employees against injuries or death at work
  • Protects employer from claims made against him/her by the employees
  • Compensation provided to employee and family in case of the employee not being able to work due to an accident at work
• Road Accident Fund

  • Applies to motor vehicles
  • Covers innocent drivers and passengers against financial losses suffered as a result of a road accident
  • Contribution towards this fund is made through a levy on petrol and diesel
• Uninsurable Risks

  • Price fluctuations due to time intervals
  • Trading inventory that becomes obsolete due to changes in fashion
  • Technological changes that make machinery and equipment outdated
  • Illegal acts
  • Losses covered due to war
  • Bad debts
  • Recession, exchange rate
  • Natural disasters in areas where such occurrences are frequent
• Requirements of a valid insurance contract

  • Insurable interest
  • Good Faith/Absolute Honesty
  • Contractual Capacity
• Insurable interest

  Means that the insured must be able to prove that he/she will lose financially if the object that has been insured is destroyed/damaged
• Examples of insurable interest

  • A person has insurable interest in his own life and health
  • Partners have an insurable interest in the lives of co-partners
  • A creditor has an insurable interest in the life of his debtor
  • A married person has an insurable interest in the life of the spouse
  • A person has insurable interest in his own property
• Concepts relating to insurance and assurance

  • Risk
  • Peril
  • Hazard
  • Indemnification
  • Security
  • Average Clause
  • Over insured
  • Excess
  • Proximate Clause
  • Subrogation
  • Cession
• Under-insured

  Means that the insured was not paying a premium that covers the risk. This means that the full value of the loss will not be indemnified.
• Over insured

  Means that the asset is insured for more than the current value.
• Advantages of insurance

  • Protects against various insurable losses
  • Offers peace of mind of not worrying about uncertainties
  • Cash back bonuses from SOME insurers if no claims are made
• Disadvantages of insurance

  • Can be expensive
  • Money paid on premiums could be used in investments
  • Insurers often look for every excuse not to pay a claim
• Advantages of assurance

  • Provides security to families when breadwinners make provisions for them by taking out life assurance
  • Can be ceded to financial institutions as security for a loan
  • Protects creditors if the debtor dies before paying up
  • Provided security by making provisions for the payment of medical and hospital expenses
• Disadvantages of assurance

  • Policy may not be sufficient to provide for remaining family members
  • It is costly
  • Complex decision as each individual has different needs
• What is the aim of Insurance?

  Main aim is to provide protection for assets, INcase something happens.
• What is the aim of Assurance?

  to provide security and covers long-term risk.

  • Examples, Life assurance, Retirement Annuity, Endowment, Funeral cover.
• What is the iron-safe clause?

  forces insured to keep full set of records in a fireproof safe

  • Need for this has been replaced with electronic records that can be updated daily
• What is vehicle insurance?

  there are 3 options:

  1. third party
  2. fire and theft
  3. comprehensive.

  Premiums determined by value of vehicle, age of driver and purpose for which vehicle will be used.
• What is all-weather insurance and damage and theft insurance?

  Usually covered by homeowners and household policies.

  Covers damage caused by:

  • storm
  • hail
  • floods
  • lightning
  • earthquakes
  • burst pipe
  • forced entry/ burglary.

  Premium depends on value of goods insured and amount of risk involved.
• What is Insurance of money in transit?

  maximum amount covered will be stated in policy.
• What is Fidelity Insurance?

  covers loss due to dishonesty of employees.

  • Could cover individual employees or be a floating policy where covers all staff members.
• Who is excluded from UIF?

  Public servants, foreigners on contract and people employed for less than 24 hours per month and those earning commission only are excluded
• How can pregnant women receive benefits of UIF?

  17 weeks
• Who does COIDA not apply to?

  • military staff
  • Police Force
  • domestic or casual workers.
• Who is the fee for COIDA paid to?

  the Compensation Commission annually and is based on employee earnings and risk to their profession.
• What does compensation include in RAF?

  • hospital and medical expenses at a private hospital
  • future hospital and medical expenses
  • loss of income to a maximum of R160 000 per annum
• What is Good Faith/Absolute Honesty:

  • The insured must disclose all relevant information that may affect their contract.
  • All questions must be asked and answered honestly and accurately or Else the policy will be null and void.
  • The premium to be paid and the decision to accept the risk is based on the information supplied by the client.
• What is contractual capacity?

  • All parties must be 18 years or older and of sound mind.
  • Intention to bind: both parties must intend for the agreement to be legally binding.
  • Executable: it must be reasonable to carry out.
  • Obligation: both parties must be clear about what is expected of them.
  • Legally binding: contract must be legal in nature.
  • Communication of intent: must specific and made clear to both parties.
• What is risk?

  likelihood of an uncertain event occurring.
• What is peril?

  potential cause of the loss and what is covered by the insurance policy.
• What is hazard?

  a circumstances that increases the risk of the peril occurring.