Personal Finance

How to walk the tight rope that is general insurance

insurance

Insurance is becoming a necessity and understanding of the fundamentals is key. FILE PHOTO | NMG

Insurance has many facets and all of them cannot be covered in a single article. In this article, I will focus on general insurance policies.

General insurance or property and casualty (P&C) help protect your assets and also provide liability coverage if you're found legally responsible for an accident that causes injuries to another person or damage to another person's property. Under this, we have a myriad of contracts / policies that can be issued which can either be commercial or personal.

A policy is a formal contract document issued by an insurance company to an insured/policyholder. The policy serves as: legal evidence of the insurance agreement, sets out the exact terms on which the cover has been provided and states any associated information about the policy.

Remember that an indemnity contract is based on a mutual contract between the insurer and the insured to compensate for the loss against payment of premiums. Therefore without premiums being fully paid the contract is null and one cannot claim compensation from the insurance company.

Before an insurance company issues you with a policy, there should be an application form completed by yourself for insurance. This is the proposal form. A proposal form seeks basic information of the proposer and whatever is to be insured. Proposal forms help the insurance company to calculate all the potential risks in relation to the insurance policy, hence deciding the premium amount.

Providing wrong information or withholding information on the proposal can lead to the insurance company declining your claim. Material misrepresentation is a significant untruth on an application form which, if an insurer had access to, they would have made a different decision.

To illustrate the sections of a policy document and other terms used therein, let’s narrow down to a domestic insurance policy. Domestic package cover (DP) is a policy that protects your home and belongings against covered perils. It also includes liability cover, which will protect you (and the households) in the event that you're found legally responsible after someone is injured at your home or you cause damage to someone else's property.

DP policy has 5 sections; Section A, covers the structure/building of your home, Section B covers personal belongings or contents in the building, Section C covers items you move around with e.g. phones, laptops etc, Section D provides for Workmen Injury Benefit Act (WIBA) for domestic workers and Section E & F covers owners and occupiers against lawsuits for injury or property damage caused to other people.

It is important to know what Perils you are covered against to avoid surprises in case something happens to your property. This defines your coverage and is normally stated in your policy document e.g. you will be indemnified if loss of the building is caused by either fire, lightning, earthquake, explosion etc as stated in the policy. An example of a peril not covered is loss due to government, municipal or local authority action.

In most cases, immediately following the coverage section is a section titled either “Additional Coverages” or "Coverage Extensions”. This section lists down other cost that are covered in addition to paying for repair or replacement of the insured building e.g. Debris removal, paying for municipal charges, alternative accommodation cost.

Another section is the policy condition section. This identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, cancellation and nonrenewal. The general condition part will also contain what actions an insured should take should an event that gives rise to a claim under the policy occur.

Most property and casualty policies will also have a section on Exceptions. Exceptions state what the insurer will not be liable to. They are basically exclusions. It’s important to read the policy to know the exceptions that apply to avoid surprises at the time of claiming. Examples of exceptions are terrorism & violence, loss occurring outside the territorial limit, loss or damage as a result of wear and tear etc.

We also have terms like endorsements in the policy document. When it comes to property and casualty insurance, an endorsement is an amendment to your insurance policy contract that specifies your coverage under certain special circumstances or for itemised valuables.

Endorsements can be elective or mandatory e.g. coverage for valuables like jewellery, golf clubs, antiques and other itemised household objects that are not normally covered under the contents. Rates for insuring these valuables are often higher than normal rates due to higher risks for this items.

Insurance is becoming a necessity and understanding of the fundamentals is key. A good starting point is to read and understand your policy document to ensure clarity of the risks covered against and those you are still exposed to. This will ensure a smooth and seamless process at the time of claim.

Japheth Indakwa, Actuarial & Risk Manager at Jubilee Insurance.