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Car Insurance Terminology

Obscure wording and complicated terminology tend to confuse us, often leaving us with only a partial understanding of the insurance policy we have taken out. It is essential that you as a policyholder always know exactly what you are covered for and under which circumstances the cover is valid.

Therefore, we have compiled a list of some of the buzzwords in the insurance industry and their meanings:

1. Underwriting

According to Wikipedia, Underwriting refers to the process that a large financial body such as a bank or an insurance company uses to assess the elligibility of a potential customer to receive their products.

It all started in 1871, with the Lloyd’s of London insurance market situated in the City of London. Financial bankers routinely offered to accept some of the risk on a specific venture (a good example being a sea voyage) in exchange for a monthly premium. This is the concept of insurance as we know it today in its purest form.

The bankers would literally write their names on the slips providing the risk information. Underwriting is not a term solely used by the insurance industry. In addition to Insurance Underwriting, one also gets Securities Underwriting, Bank Underwriting, Real Estate Underwriting, Forensic Underwriting and Sponsorship Underwriting.

2. Excess

It is the bane of any policyholder’s existence. We all know it and we all hate it. But knowing the different types of excesses you get and how they work is essential, as it can save you a lot of money. It is worth noting that excesses are sometimes referred to in insurance policies as “First Amounts Payable”.

Generally speaking, insurance excess can be subdivided into two categories: Flat Rate Excess and Conditional Excess.

Flat Rate Excess is pretty self-explanatory. It is a set rate charged to the claimant  upon a claim being settled. It can either take the form of a flat rate amount, ie. R500.00 upon claiming for a new windscreen, or a percentage of the value of the claim.

When a percentage is called for, a minimum amount is usually stipulated as well. This would typically be worded as such: “10% of claim minimum R2, 500.00”. A percentage value is often used for higher-value claims.

Conditional excess only kicks in when certain conditions are being met. In the event of a vehicle accident, examples of conditional excesses that might be levied include the driver of the vehicle having their driver’s licence for less than 3 years or the vehicle licence being outdated.

In the event of a vehicle theft, conditional excesses may be levied if the vehicle did not possess the minimum security features stipulated in the policy schedule. Read your policy schedule carefully on this point, though, as some insurers reject the claim entirely if the vehicle security did not measure up to the minimum standards.

Flat-Rate Excess is routinely used for both basic excess (what you are going to pay anyway) as well as additional amounts payable (anything else you might need to pay). Conditional excess is mostly only used for additional amounts payable.

3. Limits of Indemnity

A limit of indemnity clause will usually be added to your policy if you have public liability cover. Most motor vehicle insurance policies come standard with public liability cover, to protect the insured against lawsuits from any bystanders harmed during an incident.

A limit of indemnity is the maximum amount that an insurer is willing to pay out on one claim, and usually within one policy year. If the limit of indemnity is described as being an aggregate limit, it means that the amount stipulated is what is payable over all claims in a policy year.

The average limit of indemnity for public liability cover in South Africa is around R2 million.

It is vital to know these terms. If worst comes to the worst and a claim needs to be filed, you want to feel informed and knowledgeable about everything involved in the process. Knowing these terms will also give you the opportunity to go through your existing policy and potentially negotiate different policy terms with your insurer should you not be happy with the current state of things.

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