The cancellation condition or clause contained in all short-term insurance policies, including car insurance policies, grants both the insurer (the insurance company) and the insured the right to terminate a policy at any time during the term of the policy. The cancellation of the policy will be subject to a notice period. The cancellation clause will also stipulate the payment or refund of premiums during the notice period. A cancellable policy is one that may be cancelled.
In most cases the notice period will be 30 days written notice given by either party to the contract. The onus, in terms of the contract, is usually on the insured to check that cancellation took place on the arranged date.
The following acts by either the insurer or the insured will result in the termination of the contract: failing to make payments, fraudulent activity and misrepresentation. The insurance company will not cancel a policy if all the premiums are paid up to date without a good reason and the reason must be explained to the client. Insured clients can lodge a complaint with the Ombudsman for Short-Term Insurance if they feel they have been treated unfairly.
If you give notice on your car insurance to move it to another insurer make sure that the new cover is in place from the agreed date.
The term underwriting capacity refers the amount of insurance one individual insurance company, or the complete insurance market, in a particular place or country, can take on. Short-term insurance companies in South Africa provide different types of cover such as car insurance, householders – and house owners insurance. Their capacity to take on more insurance business, or new clients, is limited to the extent of their financial strength.
Capacity in simple terms is the supply of insurance available in the market to meet the demand from people looking for insurance. Legally insurance companies need to maintain certain financial ratios or measurements to ensure that they remain profitable. One such important ratio is the insurer’s capital relative to its exposure to risk. Insurance companies need to maintain a sufficient level of capital to take on risks.
Think of the enormous impact the World Trade Centre terrorist attack had on the insurance industry’s capacity at the time. When capacity is reduced by huge disasters such as this the industry must rebuild capacity through methods such as an increase in income, raising more capital and taking on favourable business. Inevitably it will result in an increase in insurance premiums.
In individual cases where one insurance company is asked to take on a big risk, for example insure a fleet of cars, that will exceeds its capacity, it can look for reinsurance from other companies to spread the risk.
The basic insurance needs of the man in the street, such as car insurance and household insurance, are sufficiently catered for by the short-term insurance industry in South Africa. But what happens if a big industrial company cannot find an insurer who is prepared to take on their specialized risk?
A captive insurance company can be set up by a large industrial or commercial business, or a group of companies, with the purpose of carrying the insurance risks of the “parent” company. The parent company or group of companies will have one hundred percent ownership of the captive insurance company.
By setting up their own insurance company the group maintain the risk as well as the premiums within the enterprise. When a business cannot find commercial insurance for their specific type of business within the insurance market, they may consider the option of forming their own captive insurer.
However, not every business can decide to form its own captive insurance company. There is very strict legislation that needs to be adhered to when setting up a financial institution and the likelihood of companies taking this option is very small. Captive Insurance companies in South Africa must be registered and licensed by the Financial Services Board. Some companies have set up their captive insurers off-shore.
Loss or damage of assets such as a car can be disastrous, therefore the need to take out insurance.
A car insurance policy is a contract between the insured (the person whose car is being insured) and the insurance company. The insured undertakes to pay a premium, usually monthly, to the insurer who, in return, provides the insured with cover against risks as specified in the policy. A loss must be suffered by the insured before a claim can be made.
The risks can include damage to the car through accidents or other perils (risks) such as fire and hail, injury, loss through theft, hijacking, vandalism, falling objects and claims by third parties.
Different types of car insurance policies are available in South Africa, the main classes are:
- Comprehensive cover that covers most risks
- Third party, fire and theft
- Third party only
The premium paid by the insured will depend on the type of insurance cover bought as well as on the risk profile of the insured. This will include age, the actual car’s value, gender, security measures, residential risk area rating, claims history and credit record of the insured.
Car insurance provides protection from losses that result from either owning or operating a car. Mechanical losses are not included in car insurance and separate cover called mechanical breakdown cover must be taken out to protect against this risk.
Many people spend a small fortune on installing the best sound system they can find in their cars. No longer is a car radio sufficient, it’s CD players, MP3 Shuttle players or even DVD players that add to the pleasure of driving. When it comes to car insurance it is important to note that, even if you have comprehensive car insurance, your sound equipment is not automatically included in your policy. There may be exceptions but in most cases you will need to specify your sound equipment and an additional amount will be added to your premium.
Unfortunately car radios and sound systems are very popular items with car thieves and often the reason for break-ins into cars. When you insure your sound equipment the excess is usually rather high so carefully weigh up the value of the equipment compared to the price of the insurance cover. It may not be worth the expense to insure a low-value car radio. Should you insure your sound equipment you will be required to declare the value thereof as well as the make and the model.
Take care of your car and any valuables in it. If possible remove your sound equipment from the car when you are not driving. Don’t tempt thieves by leaving valuable items clearly visible. Enjoy the music but don’t let it distract your attention.
When you buy a car the financial implications need to be reviewed carefully. Not only will you need money to pay for the purchase of the car and car insurance but you also need to calculate the running costs of the car. Included in the running costs will be items such as fuel, oil, tyres, maintenance and servicing.
It is important to have your car serviced on a regular basis to ensure it always remains in a roadworthy condition. Being roadworthy is a condition of any car insurance policy and claims can be repudiated by the insurance company if the car was found not to have been roadworthy at the time of an accident. When you buy a brand new car there will often be a service plan included in the price. The service plan cover is for an agreed period and distance. Read all the details regarding your service plan as there are different types of plans. Some only cover maintenance items such as oil, spark plugs, oil filters etcetera, while others may include different items.
Some companies and insurance companies now also offer maintenance service plans for cars older than three years, up to a ten year old car, or a maximum of 250 000 kilometers. If you are interested in buying a product such as this make sure you deal with a reputable company. Not all companies selling this product are registered insurers in terms as the Financial Advisory and Intermediary Services Act. (FAIS)
Car towing insurance is not a stand-alone product but is included when you take out a Comprehensive car insurance policy. Sometimes third party, fire and theft insurance may also include this added benefit. Familiarise yourself with the detail of your car insurance to see if you have car towing insurance cover.
If towing is covered by your insurance you will receive a “Do not tow” sticker which you need to display in your car to ensure that it is not towed by any unauthorised towing company. You may be unconscious after an accident and not be able to make your own arrangements.
When you are involved in an accident phone your Insurance Company immediately and inform them of the accident. Confirm that they will make arrangements with an authorized towing company to tow your car. If you allow an unauthorized towing company to remove your car you will be liable for the cost and your insurer will not refund you.
Many people have fallen victim to unscrupulous tow truck drivers who claim to represent the insurance company. You can pay between R2 000 and R3 000 for towing plus R250 storage a day. Be prepared for accidents, attach the sticker with the insurance details to your car’s windscreen and also program their number on your cell phone.
Remove all personal belongings and valuable items from the car and confirm that the towing operator has listed items such as the wheel spanner and spare wheel on the towing sheet.
Caveat Emptor is a Latin term meaning “let the buyer beware.” It is an implied warning, without being stated openly, that a seller is not bound to volunteer any negative information about the item he is selling to a buyer. The buyer therefore assumes all the risk should the item be found defective after the sale; unless the seller issued a written warranty with the sale of the item. In normal run of the mill business contracts the rule of caveat emptor applies, even in large purchases such as a car or house. Where it can be proven that substantial information was withheld from the buyer – one that would have influenced his decision whether to buy or not – the buyer will have the right to take the issue to court.
Insurance contracts, be it long term or short term insurance such as car insurance is not based on the rule of caveat emptor but on the rule of Uberrima Fides meaning “utmost good faith.” By its very nature insurance contracts cannot rely on “let the buyer beware.” The insurance company relies on the utmost good faith of the client to declare all the information available regarding the item being insured, such as a car. Not disclosing all the facts or misrepresenting information gives the insurance company the right to cancel the contract.
A certificate of insurance is a document issued by an insurance company to confirm that insurance cover is in place. It is mainly used in the Marine area of insurance.
Where a company takes out a group policy for all its employees the insurance company can also issue certificates of insurance to each individual member. This will act as proof that the member is in fact insured under the policy and it will also list the individual’s terms and the amount of cover in place.
When individuals take out short-term insurance, for example a car insurance policy, they are not issued with a certificate of insurance as they receive their own policy document and schedule as proof that they took out the specific insurance. It may become necessary for an individual to proof to a third party, such as a creditor, that he has insurance in place that is current and paid up to date. In such an instance the insured party can request an official letter from his/her insurance company to confirm the details. If you deal with an insurance broker you can also request him to issue you with a letter as proof of your insurance.
Insurance is all about accepting risk. The higher the risk to be carried by the insurance company, the higher the premium will be. A claim-free group is a term used in car insurance when establishing the risk rating group into which an insurance applicant will fall, based on his previous claims record. Insurance companies use risk rating groups as one of the factors when calculating a specific individual’s premium. Claim-free group rating is mostly used for comprehensive car insurance premiums.
When a car insurance client has been comprehensively insured without making any claims for three consecutive years, he would be placed in the claim-free risk rating group. The claim-free rating will allow the insured party to qualify for a reduction in his monthly car insurance premium. The reduction in premium is usually calculated as a percentage discount allowed.
When you fall into a claim-free group you will also qualify for a no-claim bonus. Make sure that your car insurance policy offers this benefit. Protecting your claim-free status and your no-claim bonus can save you a lot of money in car insurance. Protect it by taking all the necessary safety precautions and don’t make small claims that will affect your no-claim record.
A form supplied by the insurance company that must be completed by the insured party to report a claim in terms of the policy. Completing a claim form after a car accident or hijacking can be a very unpleasant experience. Being prepared in advance will make your life much easier when you have to complete a claim form. Keep all your insurance information in a save place.
Complete your claim form as soon as possible after the accident or loss. If your car has been stolen most insurance companies will stipulate that you must report this to the police within 24 hours. If you are involved in an accident, advise the police as well, it will be in your own best interest to have a police report to support your claim. If you deal through an insurance agent inform him of the loss.
Complete the claim form in detail. Most people hate to complete forms but if you do not complete the form properly your claim will be delayed or not paid at all. A motor accident claim form has a lot of details such as your personal details, that of the driver when the accident took place, details of passengers, damage to third party cars and injuries, details of any witnesses, full details of the accident as well as a sketch.
The claim form must be signed by the insured party before submission. Claim forms are available on the internet on your insurer’s web site, or request one from your insurance agent/broker or the company.
When an insured party suffers a loss that is covered by his insurance policy, he will request the insurance company to reimburse him for the loss. The compensation he receives is called a claim. The loss must be covered under the listed insured perils (risks) in the insurance policy. In the case of a car insurance claim you will lodge a claim when you have been injured in a car accident or your car suffered damage.
As an insured party you have a legal right to ask for repair or replacement of the insured item. The big issue is to ensure that the actual risk which resulted in the loss is covered in your policy. For example, if you have third party insurance only you cannot claim for any damage to your own car or for your own injuries as this is not covered under the terms of the contract.
Lodge your claim as soon as possible after the event that gave rise to the claim. The insurer may first have to investigate the claim before payment can be made. Check your policy for details of the claims procedure. If it is an item covered under all risks you may be required to report the incident to the police within 24 hours. The normal period for making a claim is usually 30 days.
You need to follow your insurer’s claims procedure. Some companies have forms available on the internet which you can complete and fax as the insurance company requires your signature on the claim form.
A Reported Claim – this term is used when an insured person has advised the insurance company of a loss that took place. An example is reporting an accident to your car insurance company.
An Unreported Claim – is a claim that has not yet been reported after a loss was suffered where the loss took place within an accounting period for the Insurance Company. This becomes important when Insurance Companies have to report on their financial position as they need to place money in a fund for claims that will fall in the reported period. This is called Incurred but not Reported Losses. (See IBNR Losses)
A Closed Claim is a claim that has been settled by the Insurance Company, it is also called a resolved claim.
Claim Cost Inflation – this refers to the increase in the rate of claim payments and it usually refers to the increase in the average cost per claim.
Claim Frequency refers to the number of times an insured person has claimed against a policy within a specified period. As an example – an Insurance Company will report their average claim frequency as the total number of claims divided into the total number of policies for a financial year.
Claims Experience refers to the number and amount of claims handled by an Insurance Company during a specific period.
When you have to lodge a claim with your car insurance company, it will not be under the nicest of circumstances. You will be upset, even traumatized, or injured depending on the event that brought on the claim. It could be the result of your car being stolen, a carjacking or an accident. Ensuring that your financial records are up to date and in order will make your life much easier during these stressful times.
Keep all your documents in a safe place and copies thereof at another place of safety. When you take out car insurance in the first place make a point thereof to familiarize yourself with the procedure you need to follow in case of a loss. Every insurance company will have their own procedure to follow so find out what your company’s claims procedure is.
Make sure you report the incident to the police as soon as possible and get a case number which you will need for the insurance company. There is also a time limit for lodging the claim with the company. Many insurers now have online claim forms that you can obtain, complete and fax back to them. If you have an insurance broker or agent, ask them to help you with the claim. If an insurance adjuster is appointed by the insurance company keep in touch with him and provide any outstanding documents. This will speed up your claim.
Insurance companies also have help desks that will provide you with assistance in completing your insurance claim.
An antique car is indeed a thing of beauty. Classic insurance refers to specialised motor insurance of classic, vintage and collectable cars. It is a niche product and will therefore not be available at all insurance companies although more of them are now offering this product. You will find details of classic car insurers on the internet. The insurance features differ in some respect from “normal” insurance.
Vintage or classic cars are cherished property and deserve special care in the form of specialized insurance. The insurer will require as much information as possible about the car before agreeing to offer insurance cover. The type of cover is a comprehensive policy with the following features:
- Premiums are payable annually. Monthly premiums will only be allowed if approved by the underwriter and will work out more expensive.
- In general car insurance is based on the market value of the car. With classic insurance you have the option to insure on an agreed value basis. The value that is agreed on by the insurer and the insured will remain the same and no depreciation is taken into account.
- These cars are not insured for daily use—limited mileage will apply, usually 8 300 kilometers per year. Usage should be for pleasure or social purposes.
- Malicious damage is covered, including soft tops.
- “Cherished remains clause.” In case of a total loss the insured will have the first option to purchase the salvage from the insurance company.
According to Wikipedia a Code of Conduct can be described as – “rules outlining the responsibilities of, or proper practices for, an individual or organization.” In 2007 the International Federation of Accountants provided the following definition: “Principals, values, standards, or rules of behaviour that guide the decisions, procedures and systems of an organization in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents affected by its operations.”
The South African Insurance Association (SAIA) acts as a promoter of short-term insurance companies in South Africa, which includes car insurance companies. SAIA has issued a code of conduct for all its members, it is called the “Code of Good Business Practice.” All members are required to adhere to the code which lists as part of its objectives the promotion of high ethical standards within the industry; the promotion of customer satisfaction and a dispute resolution mechanism.
It sets out requirements for its members referring to, amongst other things – acting in good faith, complying with legislation, respecting the privacy of their clients’ information and promoting the general public’s understanding of the industry. It also deals with the disclosures that have to be made to prospective clients, claims handling and claims rejection procedures and also disciplinary processes. A copy of the full code of good business practices can be obtained at the SAIA website at www.saia.co.za.
This term is used in the car rental business. When you rent a car the car rental company have Collision Damage Waiver (CDW) as an offer on their contract. It is an option that reduces a car renter’s financial responsibility in the event of damage to the car.
Some car rental companies offer two options: the normal and a Super Collision Damage Waiver. The latter will reduce the car renter’s responsibility for accidental damage even further. The limits will be set out in a table on the contract you sign when renting a car. The waiver is limited to a certain amount and normally excludes tyres, glass such as window and windscreen and towing costs. An excess also applies.
Collision Damage Wavers are not acknowledged by the South African Financial Services Board as a type of insurance. Disputes have arisen as to the right of car rental companies to insist on the purchase of these waivers as the argument is that insurance is already included in the rental. Some rental companies will now request South African residents to provide proof that they have arranged private insurance for the rental car, if they refuse to purchase the Collision Damage Waiver. For International visitors the purchase of the CDW is a non-negotiable.
Commission is the compensation paid by an insurance company to agents, brokers, direct sales staff or independent intermediaries for placing business with the insurance company. It is payment for services rendered on behalf of the insurance company. Commission is also sometimes called a fee.
Commission can be calculated in various ways. Sometimes the calculation is based on a percentage portion of the premium. The actual percentage can differ widely from one insurer to the next and it also depends on the amount of the insurance cover arranged by the agent as well as the marketing methods used.
As commission levels in South Africa are capped by law the maximum commission earned on car insurance premiums is 12.5%. There is currently a debate on the possible removal of capped percentages on commission in favour of disclosure requirements.
Insurance companies obtain most of its business from agents who work on a commission basis only. Some agents sell products from various insurance companies, all on a commission basis. Brokers, on the other hand, represent clients in search of the right insurance; they will also earn commission from the insurance company when they place new business. A contract between the agent or broker and the insurance company will specify details of commission payments.
South Africa’s legal system is built on the following cornerstones:
- legislation (acts, statutes or laws) as developed and promulgated by Parliament;
- precedent (court decisions) You will often hear judges refer to previous court case judgements where similar findings were made;
- common law;
- indigenous law, stemming from the different communities and cultures in our society;
- as well as the Constitution.
What is common law? The Dutch brought the Roman Dutch law of the 16th and 17th century to South Africa. Then the British followed with the English law and now it all forms part of our common law system. Murder, robbery and theft are examples of the common law.
Common law is applicable to everyone; however statutory law is stronger than common law. Common law only applies when there is no statutory law about an issue before the court. Many of the legal principles we live by comes from the common law.
References to the principles of common law can be found everywhere in our legislation, including the Short-term and Long-term insurance acts. Car insurance is no exception. Terms such as subrogation, the common law test of materiality and many terms relating to liability insurance have their origins in the common law.
One of the basic principles of insurance is that when the insured has suffered a loss he should be placed in exactly the same financial position as he was in before the loss took place. Compensation is a term that can be used to describe salary or earnings, in car insurance we are using it in the context of “what is seen as an equivalent.”
If you are involved in a car accident, the compensation you will receive, according to the laid down terms of your policy, should place you in the same situation you were in before the accident. However, there are limits to all insurance benefits; if not, no insurance company will survive financially. All the benefits and compensation applicable to the different risks are listed in your policy schedule.
Compensation can take on various forms: – when you claim after an accident, your car will be repaired as compensation for the damage to the car. You may also receive medical compensation for injuries you may have sustained in the accident. When claiming compensation you must follow the insurance company procedure which will include the completion of the claim form, reporting the loss or accident damage to the police and other rules as specified in your policy.
You can only claim for loss or damage if the specific event is covered in your car insurance policy.
What do you do when you are unhappy about the service you receive from your car insurance company? According to law all short-term insurance companies must have a complaints procedure in place. The insurance company must disclose the following details to their clients:
- The procedure to follow in case of a complaint
- Contact details of the insurance company’s complaint’s officer
- The contact details of the Short-term Insurance Ombudsman
- The contact details of the Financial Advisory and Intermediary Services Act (FAIS) Ombudsman
- The Registrar of Short-term Insurance and the Financial Services Board.
The Short-term insurance ombudsman, as well as the FAIS ombudsman, has helped many policyholders in the past but you need to follow the procedure. Before you approach the ombudsman’s office you must lodge your complaint in writing with the insurance company. If you are not satisfied with the outcome you can take your complaint to the ombudsman. Just remember, there are also many cases where the ombudsman could not assist policyholders as they have not read the terms and conditions of their insurance contracts.
It is advisable to try and resolve the complaint at the first point of contact before you take further action. The websites of the Ombud’s offices will provide you with a wealth of information and advice. On the websites you will find a number of interesting car insurance cases to look at.
Short-term Insurance Ombudsman: www.osti.co.za
Financial Advisory and Intermediary Services Ombudsman: www.faisombud.co.za
A composite Insurance Company is registered to write both life insurance as well as non-life business such as short-term insurance. Car insurance falls under the short-term insurance category.
Comprehensive car insurance provides the insured party with cover for any loss suffered in respect of the insured’s car as well as damage suffered as a result of an accident, fire or theft. It also includes cover for third party liability claims for injury, death or damage to property. Comprehensive car insurance provides you with the broadest spectrum of cover available on the insurance market and will therefore cost more than other options.
The perils (risks) covered by comprehensive car insurance usually also include vandalism, hijacking, falling objects, storm and hail damage. Third party liability claims that are covered include injuries to third parties, (that which is not covered by the Road Accident Fund) passengers and damage to the property of third parties. Your own medical expenses and possessions lost or damaged while in your car are also included in the cover; however, limits will be capped and conditions will apply in these cases.
Even comprehensive insurance carries certain exceptions such as mechanical breakdown, driving under the influence of alcohol or drugs, driving an unroadworthy car or driving without a licence. Always check your policy to know exactly what is included as well as what is excluded (exceptions.) These policies also have added benefits such as medical assistance after an accident, roadside assistance and towing and storage. When you have a financed car it will be compulsory to have comprehensive car insurance.
An excess is the amount of money that you must contribute toward the cost of any insurance claim you make—it is the part of the risk that you carry yourself, the balance will be paid by the insurance company. Compulsory means “required by law or an authority” so a compulsory excess is the amount that you agree to pay, in terms of your contract, should you claim against the benefits of your policy. Excess is also often referred to as “the first amount payable.”
Insurance companies will also apply additional or higher compulsory excesses in the case of high risk insurance events or items. For example, drivers under the age of twenty five years will not only pay more for their insurance but they will also have higher compulsory excess limits applicable to their car insurance policies.
Always make sure that you are fully aware of what excesses apply to your car insurance policy. Making small claims where the excess is high will not be worth it as it also affects your no-claim bonus negatively.
The various risks covered in a car insurance policy will each have their own compulsory excess, for example the excess on a car radio may be more than that of window glass. Certain insurers will allow you to pay an additional amount each month, added to your premium and in return no excess will be payable by yourself.
Compulsory Insurance can be described as insurance that you are forced to take out by law. In many other countries car or auto insurance, as it is often called, is compulsory. In South Africa we are not forced to take out any form of car insurance. If one consider the number of accidents and the high level of crime it should actually be compulsory.
In South Africa we have the Road Accident Fund that pays out claims to third parties involved in car accidents. We could say that it is a form of compulsory insurance as all drivers contribute to this fund. How? The fund is financed through a fuel levy which is added to the price of fuel; so every time you fill your car you contribute to the fund. There were some major changes to the Road Accident Fund in 2008 (see our glossary entry on the Road Accident Fund for more details.)
There is one scenario where car insurance actually become compulsory in South Africa – when you buy a car that is financed, the bank of financier will insist on you taking out comprehensive car insurance. They need this to safeguard them against a major loss should your car be stolen, written off or damaged while there is still an outstanding balance on the loan.
The term concealment is used where an insured person withhold (or not disclose, or hide) material facts or circumstances from the insurance company. In short it is hiding the truth. A material fact refers to important information. Material facts can also be described as facts one is legally or morally bound to declare.
An example in car insurance could be that the insured declared that the car is fitted with an alarm system and immobiliser, meanwhile none of this is true. This will be called fraudulent concealment as it is the deliberate or intentional withholding of information with the intent to deceive the insurance company and obtain insurance cover; which the insurer would not have granted if the true facts were known.
The consequences of concealment could be very serious as it provides sufficient grounds to the insurance company to rescind (set aside or cancel) the insurance contract. Utmost good faith is one of the cornerstones of insurance. The Insurance Company may decide not to cancel the policy but only refuse to pay out the specific claim, depending on the circumstances of the specific case. For further details see also misrepresentation.
We always mention that car insurance is a sub-section, or part, of short term insurance. But what is short term insurance really? When dealing with insurance we refer to short term and long term insurance. The terms can actually be confusing as I intend to always have car insurance, no matter what car I am driving at the time, so I would call than long term insurance…but it’s not.
Long term insurance refers to life and disability insurance, it also includes investment policies. Long term insurance is insurance against something that is definitely going to happen sometime in the future: you are going to die, or you are going to retire one day and need to provide for that happening. Short term insurance is taking out cover against something that may or may not happen. Examples are: your car may be stolen, you may be involved in an accident, your car may catch fire and burn out. None of these incidents can be predicted with any kind of certainty; that is why you take out insurance against the risk or possibility of that happening.
Short term policies also run for specific periods of time, even if you always have car insurance, every time you buy a new car you enter into a totally new contract. Also, your car insurance contract comes up for renewal each year, even though you, or the insurance company has the right to cancel the contract at any time by giving the other party notice. Short term insurance also deals with material things, such as a car, a house and the contents of your house.
The conditions in a car insurance contract explain the duties as well as the rights of both parties to the contract, namely the insurance company and the insured person. The conditions are rules that should be followed by both parties and are legally binding once agreement has been reached and the contract signed.
Conditions qualify certain things which the insured party must do or not do before cover can take place as well as after cover has been granted. Conditions also clearly set out the rights of both the insurer and the insured. It will also clarify basic legal principles that are applicable to the insurance policy.
Conditions are sometimes split in a policy between general conditions—which pertain to all policies, and specific conditions applicable to the contract in question. The conditions of a contract contain very important information. Not abiding by the conditions can render your car insurance null and void.
Examples of conditions included in a car insurance contract:
Responsibility of the insured:
- To provide true and complete information.
- To take reasonable care and precautions to prevent or minimize loss.
- To inform the insurer if you change your address.
- To lodge claims within the specified period and to follow the laid down procedure.
Responsibility or the insurer:
- To repair, reinstate or replace a damaged car.
- To accept responsibility to make good any valid claim.
- To give the insured sufficient notice of any changes to the policy, including an increase in premiums.
Note: These are merely examples of a long list of conditions that may apply, refer to your own policy document for details of all conditions.
A contract is a legally binding agreement between two or more parties and from this contract will flow the personal rights as well as equivalent obligations of the parties. We can also refer to “a certain performance in exchange for a certain consideration.” Of essence in any contract is the principle of agreement. Without agreement there is no contract.
A contract of insurance is a synonym for an insurance policy. In the case of an insurance contract one party agrees to indemnify the other party for loss that take place—if the loss is covered under the terms of the contract.
In the case of a car insurance policy the contract will specify the item, the car, being insured as well as a list or the actual risks covered in the contract such as theft, fire, and third party liability. It will also list the exclusion of items or events that are not under cover, the amount of the insurance, the monthly premiums payable—where and when.
The contract will also contain the various conditions applicable to both parties as well as what benefits will be payable in case of a loss or damage. An insurance contract must be in writing and signed by both parties.
When you take out a car insurance policy you are entering into a legal contract with the insurance company of your choice. To be able to enter into any legal contract you need to have contractual capacity. This capacity can refer to age and mental state.
In terms of common law, which is accepted and used in South Africa, you need to be 21 years old to enter into a legal contract. People under the age of 21 are referred to as minors and they have a limited contractual capacity. However, even if you have full contractual capacity entering into any contract requires a willingness and acceptance from both parties. It is well-known that insurance companies in South Africa do not like to insure people under the age of twenty-five; if they do accept to provide insurance cover an additional excess is usually payable as well as a higher monthly premium.
Mental capacity refers to the mental state of a person. Someone who is declared as mentally unfit cannot enter into any insurance contract. Drunkenness can invalidate a contract if it can be proven that the person could not understand the provisions of the contract because of the state of inebriation. Looking at it from the other side, if you drove your car under the influence of alcohol or drugs and are involved in an accident your claim will be null and void.
This is a legal term stating that if there are any terms in a policy contract that is not clear or could be understood in more than one way, it will be construed against the person who drew up or wrote the contract, in the case of car insurance it would refer to the insurance company.
The contribution condition in insurance terms will be enforced where, at the time a loss is reported, it comes to light that there is more than one insurer or policy covering the same loss, Firstly, something like this should not take place as you are legally not allowed to insure an asset or risk more than once.
This practice will be in contradiction with another insurance rule namely that one cannot be placed in a better position after instituting a claim(s) than you were in before the claim. You therefore cannot insure your car with two different insurers and then claim from both should the car be stolen—even if you have been making premium payments to both.
Should this situation arise from oversight on the part of the insured he will only be able to claim from one of the insurers. The insurers may renegotiate contributions between themselves afterwards. According to the contribution condition each policy provider should only be responsible for a ratable proportion of the loss in the ratio that the insured sum, in their policy issued to the insured, bears to the loss. The principle that is applicable in this case is the same one that applies to the average clause. (See Average Clause.)
Contributory negligence is very often used as a defence in legal cases where one party tries to recover the cost of damages suffered as a result of an accident caused by the other party. This often comes into play in car accident cases irrespective of whether the parties have car insurance or not.
Very often in any type of accidental damage claim you will find that there was some degree of contributory negligence; in other words, both parties should accept some responsibility for the accident in a greater or lesser degree, depending on the level of negligence.
In car insurance two examples that could be used are negligent driving or driving without a seat belt. For example, I drove into your car from behind, I am guilty. But you did not wear a seat belt and therefore your injuries are worse than what it would have been had you wore your seat belt. I will accept my guilt but will claim contributory negligence on your part to try and reduce the amount of the claim I am (or my insurance company is) responsible for. Not wearing your seat belt, which is compulsory by law, has contributed to the extent of your injuries and you are also guilty to some extent.
Whenever an insurance company confirms that they are prepared to insure a client they are said to provide him with “cover.” The word cover, when used in this context, has the same meaning as insurance or protection.
Another definition: Coverage by contract whereby one party to the contract agrees to provide indemnity (cover) to the other party should a loss occur under the terms of the contract. One of the terms will be that the insured must make regular premium payments and in return the insurer will provide the insured with cover. Cover can also be referred to as the “scope of the protection.”
A covered person – where an insurance contract refers to a covered person it is referring to the individual who is named as the insured in the contract. It can also include the spouse and other resident relatives or any other person as nominated in the contract. Some car insurance policies require that you nominate any person who will have your permission to drive your car. This person then becomes a covered person as well.
A cover note is a temporary certificate confirming the existence of an insurance policy. It will only be valid for a specified period and will be replaced by the official policy contract document once issued.
Car insurance cover is the benefit you derive from paying a monthly premium on a car insurance contract. For more details see “cover.” A car insurance policy can be seen as a bundle of different forms of cover. Different car insurance policies provide you with different coverage levels. The higher the level of cover, the higher the price will be.
In South Africa we have 3 main levels of coverage when referring to car insurance:
1.Third party only
This is the lowest level of car insurance coverage available on the market and covers you only for claims from third parties should you be the guilty party in an accident. You have no cover for your own damage or for any other risks such as fire and theft.
2.Third party, fire and theft
This insurance has the same third party cover as above but also the added level of providing you with cover against theft and fire damage.
3.Comprehensive coverage level
This is the best cover available as it provides cover against all known risks. Your cover includes the levels as described in 1 and 2 but added to that you are covered for accidental damage, hail damage and hijacking. There are also added benefits such as towing and storing, cover for your car accessories (if specified), road side assistance and more.
When you buy a new car there are many financial implications you need to take into account. One of these options is taking out a Credit Life Insurance Policy. This type of insurance provides you with specific life cover to settle all your outstanding credit contracts such as your home loan and car loan in the event of your death or permanent disablement. Please note that Credit Life Insurance does not form part of your car insurance policy as such. The people who would probably offer you credit life insurance will be the dealership where you bought the car or the bank or finance house that provides you with the finance.
You will have a choice of making monthly payments or paying an annual premium. If you choose to make monthly payments it will be added to your monthly car payment. Before you decide to take out even more insurance, after you had to take out car insurance, consider your options and if you really need it. Request to see full details of the insurance such as the benefits, waiting periods, exclusions and conditions. As with your car insurance, never just take the first option – get a number of quotes if you feel you need this type of insurance and compare the premiums and benefits.
Credit Shortfall Extension is also known as Gap Insurance or Top-Up Insurance. It is called an extension as you can add this type of cover onto your existing policy. It is best explained by way of an example:
You have bought your car on credit and therefore you took out comprehensive insurance as this is required by the bank which granted you the car loan. A few months later your car is stolen and you report this to your insurance company. In those few months your car has depreciated by, at the very least 15%, and the Insurance Company pay out at either the retail or market value of the car. In many cases this will be less than the outstanding loan on the car.
The insurance company also deducts the excess that you have to pay before they pay the balance to the bank which financed your car. You now find yourself in a situation where you have no car and after the insurance payout you still owe the bank a considerable amount. Credit Shortfall insurance will fill this gap and pay out the difference between the insurance payment and the outstanding loan amount. Remember that you are still responsible for the excess.