Fire in insurance terms is defined as setting on fire an object that should not be on fire—either by accident or by chance. No person is safe from the risk of losing property, or one’s life as a result of a fire. Fire damage can take place due to a series of events over which humans have no control; or it can be the result of some person deliberately setting fire to an object. This is referred to as arson.
The effects of fire damage can be devastating, losing your house or obtaining serious burn wounds can be extremely traumatic. Cars are not excluded from fire damage, older cars electrical systems in particular can cause a big risk. Insurance against fire damage will help to soften to blow should you lose property because of a fire. Insurance cover against fire damage will assist the insured party to repair or replace property, such as car, after the experience of fire damage.
Fire will be a specific peril (risk) covered in an insurance policy and usually refers not just to fire damage but also lightning or thunderbolt, explosions and any additional fire-related perils as stated in the policy.
Check your insurance policies to ensure that you enjoy fire damage cover and also confirm what exceptions are applicable in the fire section of your car insurance policy.
A definition of damage (verb) is to cause injury or destruction. You will therefore suffer damage if your car is destroyed in an accident and you may also have suffered injuries in the process. In insurance either a loss or damage must be experienced before a claim can be made against an insurance policy.
Damages (noun) refer to the amount of money claimed for compensation for injury or loss. Damages do not only refer to the amount claimed but also when it has been confirmed for payment, i.e. “The court has awarded damages to the amount or R100 000 to the claimant.” Damages in insurance terms are financial compensation due for loss, damage or injury suffered through an insured event.
In a car insurance policy events that are insured will be listed under the sub-section Loss or Damage. It will include items such as:
- If the car is disabled though damage the insurer will pay for towing the car to the nearest approved repairers;
- Pay for car hire for the insured for a specified period while the car is being repaired;
- Will deliver the car to the insured after its been repaired and
- The insurer will indemnify the third party on behalf of the insured for damages suffered.
Please note that this is not an exhaustive list of everything listed in a general car insurance policy. Always check the details on your policy as well as the conditions and exceptions that are applicable.
The declaration is a statement on any insurance proposal form signed by the person applying for insurance, certifying that all information supplied to the insurer in the proposal is truthful, complete and accurate. If any of the information on the declaration page is found to be false, it will render the contract null and void.
The declaration refers not only to the statement signed at the bottom of the information but to all the actual information declared, it is therefore referred to as a declaration page. The information supplied on the declaration page is crucial as it will form the basis on which the policy is issued. It also determines the premium amount that will be asked.
With reference to a car insurance declaration form the following information will be required:
- Full names, identity number, age, gender and address details of the person applying for insurance, this will include residential and postal address details;
- Contact details: telephone numbers at work, home and cellular phone, fax number and e-mail address;
- Details of the property that is being insured—the make, model, registration number, engine number, security fittings;
- Location and use—where is the car kept at night, i.e. a locked garage, is it used for private and/or business use;
- The type of car insurance applying for;
- The amount of insurance coverage;
- The policy period.
The type and amount of information can vary from one insurer to the next but the above will usually be included.
A declaration policy is used where the value or the insured items fluctuate on a regular basis; examples are stock levels or goods-in-transit. The insured party is required to make periodic declarations on the value of the insured items. This will enable the insurance company to adjust the premiums according to the fluctuations.
Default is a term that refers to the failure of making payments as agreed to in a contract. When you take out car insurance you (the insured) enter into a contract with the Insurance Company. It will be one of the terms of the contract that you pay monthly premiums to the Insurance Company and in return they promise to provide insurance cover for your car. When you fail to make the premium payments at the dates and for the amount stipulated you have defaulted on the contract.
Usually you will be allowed 7 days after the due date in which to make the outstanding payment; this is called the grace period. After this time you will have no insurance cover which a very dangerous position to place yourself in. Defaulting on your payments give the Insurance Company the right to cancel your contract.
The term default is also used in another context in car insurance. When the contract stipulate that items such as car radio’s or other sound equipment is not covered by default it means that it is not an automatic or preset option but that you need to take out additional insurance to cover those specified items.
Insurance is all about risk. When you take out car insurance you do so to protect you from the risk or possibility that your car may to stolen or you may be involved in an accident. With short term insurance such as car insurance there is always uncertainty involved and the degree of risk therefore equates to the amount of uncertainty that exists in any given situation.
For Insurance Companies to operate profitably they need to be able to calculate the degree of risk with reasonable accuracy to enable them to set insurance premiums correctly. It is part of the actuary’s job to analyse all the available statistics and so calculate the degree of risk. Actuaries will look at the statistics of different age groups, gender, the type of car and many other factors when calculating the degree of risk. They then draw up risk profiles for the different groups they have identified.
For example, it has been proven that female drivers pose a lesser risk and therefore they can obtain cheaper car insurance than men. Drivers under the age of 25 have been proven to be of a high risk and therefore car insurance will cost them much more. At the same token you will pay more if you drive a sports car.
Authority given to an agent of the insurance company to act on its behalf and accept insurance proposals as per the agreed guidelines.
A first premium paid when applying for insurance. The premium may change once all the facts are known. This is not normally used in car insurance.
Depreciation represents a decrease in the value of property such as a car due to wear and tear, as well as other factors over a period of time. Depreciation is an important factor in car insurance as it influences the market value of the car at the time of a loss.
Most insurers use current market value when paying out claims. If you insured your car a year ago at market value, that value may be a lot less today. A report in 2007 revealed that some models of brand new cars reduced by 10% to as high as 40% within the first year of ownership. When buying a new car one of the considerations should be the average depreciation rate of the particular make and model.
Factors influencing the depreciation of cars are wear and tear, ageing, usage, mileage and economic conditions. A few years ago the prices of new cars dropped and that had an immediate effect on the value of second-hand cars as their value depreciated much faster than was previously the case.
Because of the effect of depreciation on the value of cars, one should review your insurance yearly and request the insurance company to reduce the value of the insured car accordingly.
When buying insurance one can either work through an agent or broker, or by contacting the insurance company directly. The latter is called direct insurance as no intermediary is involved in the process. The term Direct Insurance is also used where there is no reinsurance applicable.
A direct writer/insurer will have direct dealings with the public through their own sales force, direct mail, via the telephone or internet; that is, no independent agent or broker will be involved in the process. Agents working exclusively for an insurance company are called captive agents and they are also classified as direct writers.
Whether one make use of an insurance intermediary or deal with the company directly will largely depend on personal circumstances and insurance needs. If one’s insurance needs are complicated it may be the best option to work through a specialist broker who knows all the products available on the market. As an example, if you have a number of vintage cars to insure rather go the specialist route.
All insurers and their agents as well as any independent insurance brokers must be licensed as qualified financial services providers under the Financial Advisory and Intermediary Services Act (FAIS.)
A direct account or direct business refers to the actual business placed with the insurance company without the involvement of any intermediary.
Disclosure is the legal duty of an insurance applicant to the insurance company to reveal all the pertinent information that may have any influence on the insured risk. The duty of disclosure of all material facts is not just relevant to the insured but also to the insurer. This disclosure must take place before a new insurance contract is issued and also when the contract comes up for renewal.
Disclosure can also be defined as a revelation made in good faith of facts that may not be general knowledge. Uberrimae Fidei – of the utmost good faith – has always formed part of our contract and insurance law. The Appellate Division of the courts decided in 1985 that good faith was an impractical way of measuring disclosure.
Although utmost good faith is still used as a reference The Reasonable man test is now widely used by our judicial system in cases where disclosure or non-disclosure played a part. The insured must provide the insurer with all the relevant information required that any reasonable man would have accepted as material to the risk. It will not be acceptable as defence to state that the facts were not revealed as the insured thought them unimportant or irrelevant.
A discount in your car insurance premiums is a reduction in the monthly amount you need to pay; if you can get a discounted premium it can save you a nice amount of money in the long run. An insurance company will be prepared to grant you a discount on your premium if you fall in a lower risk category and therefore their degree of risk exposure is reduced. The lower risk may be due to some personal characteristic or it may have to do with your car.
Women generally qualify for discounted premiums as they have been proven statistically to pose a lower risk to the insurance companies. So, it is not a sexist decision but purely based on proven risk. Older people, usually over the age of 55 tend to drive very seldom and at low speed so they also pose a smaller risk and therefore qualify for discounted premiums.
When you fit insurance approved security devices to your car this will also lead to a discount in your premium. Keeping your car in a lock garage overnight will qualify you for a further discount. A no-claim bonus is actually not a bonus paid out in cash but also a system where you qualify for discounted premiums based on the number of claim-free years you have had. (See No-claim bonus in this glossary for more details.)