When the insured person stops paying his insurance premiums a policy will lapse and therefore discontinue to provide any cover. An insurance company usually allows a grace period during which the insured can still pay the premium. In car insurance the grace period is usually 15 days. If the insured want to continue with the insurance contract after it had lapsed, he will have to pay a re-instatement fee as well as the normal premium.
An insurance policy is therefore null and void when premiums are not made in time. The contract could also have lapsed for other reasons such as certain qualifying conditions not adhered to by the insured. The terms voluntary termination and discontinuance are also used to describe a lapsed policy.
Insurance companies use the term “lapse rate” when they refer to the number of policies which have lapsed due to insured parties’ failure to make premium payments. The lapse rate is expressed as a ratio or percentage of the total number of policies in the books of the insurance company, at a specific time, such as the financial year-end or any other accounting period.
Allowing your car insurance to lapse is running a huge risk, especially if you have an outstanding balance on the car. You will be personally held liable for any damage, loss or third party claims during the time you are not covered.
When it comes to legal matters most of us avoid dealing with them, often it is simply that we feel helpless because of our lack of knowledge. As soon as you have gained the basic knowledge it will give you confidence – after all, it is very important to know your rights when you are dealing with car insurance.
Legal Assistance and the Short-term Insurance Ombudsman:
Here you need to know that the ombudsman’s role is to act as a mediator to try and resolve matters before they become legal. Once a complaint is already handled under legal advice, you cannot contact the Ombudsman for assistance. If you have contacted the ombudsman for advice and you feel that you should rather resort to litigation, you may terminate the investigation by advising the Ombudsman that you are going to take legal action.
The same rule is applicable to the ombudsman – after a provisional investigation he may advise you that the matter will be better dealt with in a Court of Law.
Legal Assistance as a benefit of your Comprehensive Insurance:
Many Insurance companies offer Legal Assistance as a benefit of taking out Comprehensive Car Insurance. You can contact the legal assistance section for telephonic advice on a number of issues. Check your insurance policy to see if you have this facility and make a note of the number to call in case of a legal matter.
Liability is an obligation or responsibility to perform or not perform certain acts. This liability is enforceable by law. Liability often refers to monetary compensation that must be paid to a third party for damages or losses suffered due to the “fault” of the person being held liable. The damage or losses can refer to losses/damage to the person or to the property of the third party. A legal liability is therefore the rules of law that determine that a person must pay for damage done to another.
As an example, if you ignore a red robot and drive into an oncoming car you will be liable for the injuries of the other person(s) as well as any damage suffered to his car. A third party can also sue you for “pain and suffering.” While you are legally liable to a third party, you cannot be liable to yourself. In South Africa the liability of third party injuries or death sustained in car accidents are covered by the Road Accident Fund (see this section for further details.)
Every person and every business is subjected to legal liability claims as the result of certain actions or omitting certain actions and it is essential to ensure that you are sufficiently covered for any liability claims, both personal and in your business.
A liability investigation is the process of assembling all the facts after a car accident (for example) with the purpose of establishing the cause of the accident and therefore the liability.
South African law is divided into criminal and civil law. Civil law has to do with the protection of an individual’s rights. The two most common causes of action are contractual and delictual (through negligence.) Delictual liability refers to damages suffered by a person as result of the wrongful actions or omissions of another. Liability insurance policies usually only provide cover for delictual liabilities.
Liability insurance provides cover against legal financial responsibilities to a third party resulting from property damage or bodily injuries/death. This cover protects against civil claims resulting from the consequences of the actions or neglect on the part of the insured person. It also covers the related legal costs.
There are different types of liability insurance such as public liability, motor third party liability and professional liability cover taken out by professionals such as doctors. In South Africa we currently still have the cover of Third Party Insurance that is included in a fuel levy paid by all motorists. This does not cover the property damage to the third party’s car. You should therefore ensure that you include this cover in your car insurance to prevent crippling financial claims against you.
Most car insurance policies will stipulate limits of liability – this refers to the maximum amount that an insurer will pay for any specific accident.
The limit of liability is the maximum amount in monetary terms for which an insurance company will accept liability on any specific loss or event. No insurance company can accept unlimited responsibility for any given loss; if they did the insurance company will not survive. The limit of liability is also often referred to the limit of indemnity.
The maximum amount of indemnity for a total loss is usually the amount on which the insurance premium is calculated. For example, if your car is insured for R300 000 and is declared a total write-off by the insurance company’s assessor, after an accident, the maximum you will be paid is R300 000 less the excess amount payable.
But, there are also sub-limits of indemnity or liability on individual events and you need to make sure that you are familiar with the limits in your car insurance policy. There will be limits placed on specified items such as your sound system. Actually, every possible event or peril will have a limit of liability. Sometimes it is expressed as an amount per person per event: For example: after an accident the insurer may state that they will pay R500 towards the medical costs of each injured person.
Limits of liability can also be expressed as a numerical value, instead of rand terms, such as 72 hours free storage or car-hire for a 24 hour period. Check your own policy document for your limits.
Loss Adjusters may also be called insurance investigators or assessors. A loss adjuster is a qualified professional whose function it is to assess the true value of a loss (or claim.) The loss adjuster can be either: a salaried employee of an insurance company; the agent or broker who sold the policy may act as the adjuster in the case of small claims; an independent adjuster works for himself or for an adjuster company whose services are acquired by the insurance company.
If the loss is in the form of damage that needs to be repaired, the loss adjuster will also oversee that the repair is done according to standard. In insurance the rule is that the insured should be placed in the same situation he was in before the loss. For example, accident damage repair to a car will be supervised by the loss adjuster.
The loss adjuster has a laid-down scope of authority depending on the instruction he receives. Sometimes he is only required to report on the circumstances which led to the claim, such as a car accident. At other times he may be requested to establish an estimate of the damage, or he can be asked to make recommendation on a fair settlement value (which the insurer is not bound to.) Lastly, he may be asked to control the entire settlement, which, in this case, is binding on the insurance company.
The adjuster checks if the loss is covered by the policy and he also has a duty to look out for any fraudulent activity.
The loss adjustment function of a car insurance company refers to all the processes relating to the administrative function of claims – this will include the following processes:
- Claims processing
- Claims management
- Claims settlement
The loss adjustment function is of particular importance in car insurance as the image that the company presents to the public is very dependent on how effectively and efficiently the insurer handles claims. In car insurance the handling of claims can be rather complicated, much more than in life assurance where everything is clear-cut. The insurance company must investigate car insurance claims, especially since fraudulent claims have increased considerably.
The insurance company’s objective is to settle claim with speed and fairness. This is important to promote the image of the company whilst it must guard against unnecessary losses and fraudulent claims to protect its bottom line profit. Car insurance companies need to remain profitable to survive in a tough economy such as we are experiencing at present.
The assessment of claims form part of the management function and a decision must be made as to whether a claim will be met or declined. Once the decision is made that the claim is valid, payment will take place; this is called the claim settlement.
An extension on a car insurance policy is as the word says: some specified item, event or risk which will be covered as part of your car insurance cover that is not usually covered under a standard car insurance policy. It therefore implies that you need to specifically ask for this extension to be included in your policy. It should be stated clearly on your insurance schedule under the heading “extensions” to be valid.
Some speciality car insurance policies such as Off-road cover, Executive cover or Exotic Car cover will include this extension as part of their offering to the client. If you are insuring an ordinary car and you want this extension you need to ask for it, and you will pay a small additional premium for the extension. Loss of key extension will always have a limit in rand amount.
Should you lose your keys and you have this extension the insurance company will carry the cost of replacing locks and keys, including the remote alarm controller. If required it will also pay for the reprogramming of any coded alarm system. If you suspect that an authorised person may be in possession of a set of duplicate keys to your car you can also claim to have the keys replaced.
Any loss of key extension will be subject to the maximum limit set in your schedule and is also subject to the payment of the applicable excess amount.
If you are absolutely dependent on your car for making a living you should consider adding Loss of Use insurance extension cover to your existing car insurance policy. Loss of use insurance protects you against the loss you may suffer as a consequence of not being able to use your car after it has been damaged or destroyed in an accident. There are many different fields of work that will fall into this category, for example representatives, people who work in emergency services and sole proprietors.
There are different types of Loss of use insurance – the main ones are following accidental damage and following theft. We are dealing with loss of use insurance following accidental damage. If you take out this cover and your car is damaged in an accident the insurance company will pay for a rental car while your car is being repaired. There are a number of conditions applicable in this case:
- The rental car option is only available after you have filed a claim with the insurance company and after three working days from the date of the accident.
- The maximum period is 30 days.
- The rental car must be returned on the day you receive your own car back.
- Should the insurance company decide to write off your car you will need to return the rental car on the day your claim is settled.
- Administration costs in relation to the rental as well as fuel costs will be for your own expense.
Loss of use insurance cover is an extension (or an add-on benefit) you can take out in addition to your existing car insurance policy. Please refer to the previous glossary entry where we discussed loss of use following an accident. We will now look at loss of use following theft. The same basic principles apply and the same people who take out loss of use car insurance following accident will probably extend the cover to theft as well.
Remember that any extensions to your car insurance will increase the monthly premium so if you have a back-up car available, in case your car is stolen, you should not bother to take out the additional coverage. The following conditions will apply if you have this cover and your car is stolen:
The insurance company will pay for a rental car effective from three days after you have reported the theft of your car and have submitted a claim.
- The rental period will expire the day that either:
- Your car is recovered and returned to you or
- The day the claim is settled.
- Should there be damage to your car resulting from the theft or recovery, the car will first be repaired and you can continue the use of the rental car until your car is returned to you.
- You will be responsible for paying the administration costs involved with the car rental as well as fuel costs.
Before we look at Loss Ratio let us first define the word loss as it is used in insurance terms. A loss can be described as a measurable decline in rand terms in the value of something; a total loss will represent the disappearance of all value. A loss is the happening of the event for which you took out insurance cover – if you insured your car against accident damage and you are involved in an accident, the loss suffered will be the cost of the accident in terms of repairs, claims from other parties and personal injuries.
The Loss Ratio is a term used by insurers to express the percentage of losses in relation to premiums. If the insurance company reports a 30% loss ratio it means that there were 30 cents in losses for every rand earned in premiums. The reserves for loss ratio is calculated as follows:
Reserve = expected loss ratio x earned premiums less paid claims
where
Loss ratio = Incurred Claims/Earned Premiums
The loss ratio provides an indication of the profitability of the insurance company. The loss ratio is used to calculate the reserves that need to be provided for. It operates on the assumption that the loss ratio is correct but in insurance we deal with the unexpected and one large claim can change the entire picture. Because of this insurers use this method in addition to other, more sophisticated methods of calculation.