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At Old Mutual we believe it's important that all our policyholders understand exactly what their insurance does and does not cover – without having to wade through pages of small print and industry 'jargon'. We answer your questions about some of the more complicated insurance terms and clarify these with helpful examples.
An excess (also known as a deductible or first amount payable) is basically an underwriting fee charged to minimise the number of small administratively expensive claims, or to reduce a loss ratio, and to impose a duty of care on the insured. Excesses are usually charged either as a percentage of the claim, or as a fixed amount. For example, you have lost your watch to the value of US$800 and the excess applicable is US$200. The claim will be settled for the amount of US$600.
However, if a burst pipe results in damage of US$375 to a ceiling and the excess applicable is US$500, the cost would be for your own account because it is less than the US$ 500 excess.
Under-insurance means you do not have adequate insurance to cover the full replacement value of the assets you have insured. For example, let's say you insured your household contents for US$80,000 and your house is broken into. Goods with a replacement value of US$30,000 are stolen which you claim under your Home Contents policy with Old Mutual. Following assessment, it is found that the current replacement value of your total Household Goods before the theft was actually US$100,000 and not US$80,000 as insured. This means that you were underinsured by 20% and we will pay only 80% of your claim, i.e. US$24,000 and not the US$30,000 claimed.
The replacement value of goods is what it would cost you, at the time of a claim, to replace all your belongings with similar brand new ones. If you submit a claim, your insurer will calculate the replacement value you should have insured yourself for. If you insured your belongings for less than that, your insurer will only pay a part of your claim and you will be responsible for the difference.
To have an insurable interest in an item, you would stand to suffer direct, measurable, financial loss if the item were lost, damaged or destroyed. For example, your TV set to the value of US$2,000 has been stolen from your home. As the owner of the TV you have suffered a measurable loss of US$2,000 because you have a financial (insurable) interest in the TV set.
The principle of indemnity is the basis of most short-term insurance contracts. This principle states that after a loss has occurred, the insured shall as far as possible be placed in exactly the same financial position as he was before the loss occurred, subject to adequacy of sum insured and all policy conditions and requirements being fulfilled. As your insurer, we indemnify you for any losses covered under your policy (subject to the above conditions).
Limit of indemnity is the maximum amount of indemnity provided by a policy. The limit of indemnity is determined by the sum insured and constitutes the insurer's maximum liability in respect of any one event or series of events. The limit of indemnity is the amount upon which the premium is usually calculated.
If the settlement of your claim results in you being in a better financial position than you were before the loss occurred, the extent of the improvement to your position is known as ‘betterment’. If this is the case, you would be expected to contribute towards the claims settlement. For example, let’s say your sound system was destroyed in a fire and a replacement similar to the system you had would be US$5,000. You prefer to upgrade the sound system to one with value of US$7,000. The US$2,000 difference in price constitutes betterment and would be your own account.
This refers to loss or damage that results in further ‘indirect’ losses. For example, if a water pipe bursts, the consequential loss would be an unusually high water bill.
Changes of information could affect your cover and your premium, so you should inform us of them immediately. Some examples are moving to a new residence, changing the regular driver of your insured motor vehicle, convictions for offences relating to dishonesty (against you or someone covered under your policy) and getting tenants to rent your property.
We recommend that you assess the value of your home contents regularly to ensure that you are covered for the correct amount. Bear the following in mind:
Tips for completing a Household Inventory
Once you have completed the inventory form, submit the form to your broker or insurer as a permanent record of your current value at risk. A video recording or photographs makes it easier to record and identify your household items. Your inventory should be updated annually, or alternatively periodically when you acquire additional household goods.
Tips for completing a Household Inventory