Insurance & Assurance Overview

INSURANCE & ASSURANCE OVERVIEW Insurance Covers short-term, uncertain events (e.g. fire, theft). You pay a premium and get indemnified (put back in the same financial position). Only covers actual, measurable losses . Assurance Covers long-term, certain events (e.g. death, retirement). Includes life cover, retirement annuity, disability and funeral policies . Provides financial security to beneficiaries. TYPES OF INSURANCE & COVERAGE Non-Compulsory Insurance Fire Insurance – excludes riots, earthquakes, volcanoes. Depends on risk (e.g. thatch roofs = high premium). General Business Insurance – includes shoplifting, burglary, public liability, natural disasters. Iron Safe Clause : Record of inventory must be kept. SASRIA : Covers looting/strikes. Business Interruption Insurance : Covers loss of income if operations stop. Consignment Insurance – Covers stock supplied to retailers until sold. Goods in Transit Insurance – Covers loss/damage during delivery. Household Insurance – Covers furniture, electronics, etc. Vehicle Insurance : Fully Comprehensive – Covers both parties in accident. Third Party, Fire & Theft – Cheaper, for older cars. Money-in-Transit Insurance – Covers cash being transported. Crop Insurance – Covers natural disasters, drought, etc. for farmers. Fidelity Insurance – Covers business against dishonest employees. Liability Insurance – Covers claims from third parties (e.g. customer injury in store). Group Life Cover – For businesses covering employees. Loss of Income Insurance – Pays % of salary if insured can’t work. Non-Insurable Risks War, nuclear damage, illegal activities, some natural disasters (depends on insurer/country). Losses from bad debts, inflation, fashion changes, etc. often not covered or high premium. COMPULSORY INSURANCE IN SOUTH AFRICA A. UIF (Unemployment Insurance Fund) Covers income loss (e.g. maternity, illness). Contributions: 1% employee + 1% employer (up to R177.12 monthly cap). Covers up to 58% of salary, for up to 238 days. B. COIDA (Compensation for Occupational Injuries & Diseases Act) Covers workplace injury/sickness/death. Employer pays annual fee to Compensation Commission. C. RAF (Road Accident Fund) Covers medical expenses, loss of income, pain & suffering due to road accidents. Paid through petrol price (currently R6.13/litre). REQUIREMENTS FOR A VALID INSURANCE CONTRACT Insurable Interest – You must be affected financially by the event. Absolute Good Faith ( Uberrimae Fidei) – Full honesty required; hiding facts = void contract. Contractual Capacity – Must be 18+ and of sound mind. 1. Risk, Peril & Hazard Risk : Chance of something bad happening (e.g. car accident). Peril : The actual cause of loss (e.g. fire, theft). Hazard : Anything that increases the chance of peril (e.g. faulty wiring). ? Insurers use these to decide how risky something is and what premium to charge. 2. Indemnification You’re put back in the same financial position as before the loss. No profit can be made from a claim. 3. Insurable Interest You must suffer a financial loss if the item/person is lost or harmed (e.g. your own car or spouse). 4. Absolute Good Faith You must be completely honest when applying for insurance. If you lie, the policy is cancelled , and no payout is made. 5. Contractual Capacity You must be 18 or older and mentally capable to sign an insurance contract. 6. Average Clause If you under-insure , the insurer only pays a part of the loss. Example: Insured R50 000 but item worth R100 000 ? only get 50% of any claim. 7. Over-Insured Item insured for more than it’s worth . You still only get the real value, but premiums are higher. 8. Excess The amount you pay when making a claim. Lower excess = higher premium. 9. Proximate Cause The main cause of the loss must be covered. Example: If your car is stolen after your house is robbed, house insurance won’t cover the car. 10. Subrogation After paying your claim, the insurer can claim from the guilty party. You can’t claim twice . 11. Cession Transferring your policy rights to someone else (e.g. to a bank as loan security). KEY TERMINOLOGY Market Value – Today’s selling price Replacement Value – Cost to replace at current prices Book Value – Purchase price - depreciation Surrender Value – Cash value if policy cancelled Paid-Up Value – Premiums stop but cover continues (no growth) ADVANTAGES & DISADVANTAGES Insurance (Short-term) ? Protects against losses (e.g. theft, fire) ? Peace of mind ? May be cheaper than replacing items ? Required for house/car purchases ? Expensive premiums ? Risk of denied claims ? Some items (e.g. phones) often excluded Assurance (Long-term) ? Provides financial security to dependents ? Can be used for loans (ceded) ? Encourages long-term saving ? Can affect current cash flow ? Complex to choose the right policy ? Some policies have high admin fees