Excess and how it applies to you…
Many policies include an excess. This is the amount you have to pay if you decide to make a claim on your policy. It’s a way of you accepting a small portion of the risk yourself.
The amount of the excess is specified in your policy. Please read these sections of the policy schedule carefully, excesses are clearly identified.
How does it work? If your home is damaged in a storm, the cost of repairing the damage might be R4000. If you had a R500 excess, you’d pay the first R500 and the insurer would pay the remainder.
Not every type of policy has the same kind and level of excess, and excesses don’t all apply in the same situations. Your insurer may have different types of excesses, and some policies may have more than one applicable excess.
Types of excesses
Most insurance policies have a standard excess or a voluntary excess. The standard excess applies to every claim, while voluntary excess is chosen by you and can reduce your premium. If selected, this nominated higher excess will replace your standard excess.
Choosing a higher voluntary excess may help to bring down the cost of your insurance premiums because the insurer won’t have to pay out so much in the event of a claim.
The total excess you are required to pay is determined by the circumstances of your claim and by your insurer
Some excesses will apply whenever you make a claim. Others will depend on the circumstances of your claim.
For example, if you are a young driver and you have an accident, an age excess or inexperienced driver excess may apply as well as the standard excess.
Your Schedule of Insurance will show the types of excess that you might have to pay if you make a claim
Paying your excess
When you make a claim your insurer will either deduct the applicable excesses from the amount it pays you, or direct you to pay the excesses to it, or to the appointed repairer or supplier.
Your insurer may require you to pay the excess in full before it pays your claim or provides any benefits under your policy.
When do you not have to pay an excess?
In some situations your insurer may waive any excess that applies, and under some policies there may be no excess at all.
A recent article in Risk Africa magazine highlighted the need for short-term insurance advice and where one should go to get this advice. The article highlighted the greater demand for short-term insurance in South Africa with a 34% increase in the number of vehicles on the road between 2007 and 2013 and a higher proportion of the population moving into Living Standard Measure (LSM) 6-12.
One needs advice on how best to insure their assets to ensure that they are adequately covered in the event of a financial loss. A recent Discovery Insure study of data showed that 66% of clients who completed an inventory were on average R1million under-insured. The problem is that most insure their assets for the purchase price and not the replacement value.
Whilst some “High Net Worth Individual” insurers appoint a valuation expert to assist in determining a value. Most do not, and this leaves you with the daunting task of establishing a value yourself. Have you ever thought that if your house burnt down to the ground what you would need to replace everything you own. It may surprise you to know that an average family of four accumulates between R200,000 and R300,000 in clothing and linen alone at any one time. Add it all up correctly and you will see how under insured you actually are.
When it comes to property, most insure their house for what they paid for it. Try rebuilding it, the cost will be much higher than the purchase price.
A DIY valuation will give you a ‘guesstimate’ replacement cost. It is best however, too – in conjunction with your advisor to have a professional valuation done, this becomes an ‘agreed value’ and removes the risk of under-insurance.
You would not tackle the legal system without a lawyer, don’t tackle insurance without a broker.
Welcome to LSG’s new quarterly
newsletter “Chit Chat”, in this we will
highlight news from the insurance
industry and impart on you some useful
tips to get the most from your insurances.
For most, insurance is a pet hate – something we gotta have and need but not tangible, so no instant gratification when paying those premiums. The first methods of transferring or distributing risk in a monetary economy were practiced by the Chinese and Babylonian Traders in the 3rd and 2nd millennia BC. Chinese merchants traveling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel capsizing. Thanks to Wikipedia we continue to learn..
This month see’s the launch of our new Income Sure product, an income protection insurance product underwritten by Hollard Insurance Co Ltd and focusing on choice of cover. Your most important asset is your income, so why not insure it? You can choose protection for Weekly Cash Flow, Bond or Rent payments, Vehicle Lease Payments and Business Overheads. Do not let an illness or accident leave you high and dry, the trauma is always enough to deal with, don’t add financial pressure to the mix. Its easy to apply for, just click on the “Apply Now” tab set forth below.
Insurance Tip: The rand has continued its retreat against a strengthening dollar and this has an impact on the replacement value of many a commodity. It is important to ensure that your jewellery replacement values are checked regularly. Getting to a jeweler for valuations is not always possible and the cost associated thereto can also be prohibitive. Gold and Silver prices are readily available on the World Wide Web, and for a very small investment you can invest in a Digital Pocket Scale. You will be shocked when you just calculate the gold or silver price! but remember diamonds aren’t just a “girls best friend” they need a Gemologist to value them..
Keep an eye out for regular product notifications from the Team at LSG.. don’t unsubscribe as there will be something for everyone.
Till next time – be safe
Editor at Large or should we say Large Editor!!
Radical approach to tackle South Africa’s water woes.
Unexpected water loss has a negative impact on both the consumer and the council that supplies it. An unknown leak in a pipe could easily see a consumer receiving a massive bill at the end of the month, one which they will probably dispute. This means that the council is unlikely to receive payment for this water anytime soon, and thus both parties end up losing out.
What is required is something to bridge this gap, some form of insurance that covers the consumer for unexpected water loss while at the same time ensuring the council receives payment for the water it has delivered. Thanks to MyWater Insured, a solution powered by Innovation Group, who understand risk, consumers can now obtain cover of up to R3 000 for water loss.
Larry Symington, CEO of MyWater, explains that water loss insurance is not without precedent, pointing to a scheme in eThekwini where some 260 000 residents subscribe to such a solution.
“MyWater has teamed up with LSG Insurance a niche financial services provider to build on this idea, offering not only the MyWater Insured product, but also MyWater Legal Assist. This provides customers with the security of knowing that they will be able to obtain legal advice in the event of municipal billing misunderstandings,” he says.
“The way the solution works is quite simple. Consumers can obtain these products starting at R96 per annum, and can be free of surprise accounts, provided they make use of the latest “new generation water meter”. When purchasing these products, MyWater will assist consumers to obtain such a meter upgrade from the municipality where the upgrade will be at no extra cost to consumers on “proof of Policy”. Once again, the new meters offer twofold benefits. It provides memory and a viewing window for consumers to self-manage their actual usage, enabling them to constantly keep an eye on their consumption during the current month.”
Furthermore, adds Symington, these meters benefit the municipality too, as consumers are expected to SMS the previous month’s closing balance to a short code provided by the company. These readings are then forwarded on to the municipality also for free, reducing the need to rely solely on meter readers helping to eliminate the potential for human error. It’s a win, win for all, consumers get to detect leaks early while acknowledging their debt to the municipalities thereby taking out those nasty surprises.
“MyWater is a leading technology developer that considers that part of its responsibility is to share knowledge and experience with municipal officials and it’s on the back of this that we are embarking on a nationwide road show campaign. We understand the importance of driving towards true Smart Cities, and feel that helping consumers and municipalities gain more control over water use is a great way to get the ball rolling. Moreover, our products are 100% locally developed and produced by people who truly understand our diverse economy.”
Moreover, continues Symington, President Jacob Zuma recently announced a government ‘war on leaks’ programme, explaining that water leaks account for nearly 40% of the nation’s water loss and costs the country some R7 billion a year. He says that with this in mind, the country, the municipalities and the consumers need all the tools they can get to help overcome this challenge. New meter technology, cell phone technology, coupled with consumers’ early participation and insurance as a backup for the unforeseen can only play a major role in winning this war.
“In the end, our goal is to bridge the divide between the consumer and the municipality, while laying the foundation for a Smart City. It is our contention that people make for smart cities and not technology in isolation and that every South African should know the value of water, everyone should make a contribution to water savings. Furthermore, the transparent communication platform can feed information to the Credit Providers for those consumers who regularly pay their water accounts helping citizens to improve their credit ratings, thereby turning water, a basic right and water management, a basic responsibility into a genuine wealth creator,” cost effective loans to more credit worthy citizens can only help the economy grow he concludes.
House purchases are typically funded by a mix of savings (used as a deposit or down payment) and a home loan, financed by a bank. Local banks apply tough lending criteria and it is common for first time buyers to have to ‘find’ between 10% and 20% of the house price as a deposit on the transaction. This means Joe Citizen will have to save up to as much as R200 000 in order to afford the deposit on a R1 million home.
So the last thing an already-stretched homebuyer can afford is to be lumbered with huge bills to repair an unforeseen defect in the property they have just purchased. “Very few home buyers have the financial means to pay thousands of rands for repairs immediately following the purchase of their home. An unexpected defect can turn their dream home into a nightmare,” says Lee-Ann Dobrescu, Group Business Development Manager at Hollard; “which is why Hollard has introduced an insurance product that will pay for the repair of faults or defects in a newly purchased home, which were not evident at the time of purchase.”
Called ‘Hollard Home Warranty’ the policy offers protection against a list of defects that may be discovered during the first two years over taking ownership,” she says. The product covers faulty or defective design, structure or workmanship for a number of the key areas of the home, including the roof, walls, foundations, tiling and paving. Faulty electrical, drainage, plumbing and irrigation systems, as well as water waste management issues, will also be covered.
Explains Simon Griffiths, co-creator of the product, “This is a product that was designed with the home buyer’s financial stress in mind.”
An important point is that the policy is bought by the seller, not the buyer. This is an interesting take on ‘insurable interest’ principal, because the normal legal basis is that a person who is not subject to direct financial loss from an event — that is, in this case, the seller, because the new owner of the property has the cost of repairs on his hands) does not have an insurable interest.
Griffiths says the seller can include the cover as a feature in the sale, or the buyer may insist upon the Warranty as a condition of the sale. In both cases, payment for the Warranty forms part of the offer to purchase. A premium is determined based on the actual selling price of the home and then deducted from the selling price and paid over to the insurer in the event of a successful sale, in much the same way as estate agency commissions and other costs are settled.
The home warranty cover does not act as a replacement for conventional homeowners’ insurance: it is rather intended to cover the gap between the sudden and unforeseen events covered by traditional insurance and the uninsured costs of day-to-day maintenance required on a home. It is also a product intended to add value to sellers by making their home stand out from the rest through offering a buyer complete peace of mind. This should increase the interest in the home and support a faster sale. Sellers are also protected from the often-overlooked exposure to the risk of defects surfacing in the home, even after transfer of the property. Sellers are liable for costs of repairing such defects, if it can be shown that they could and should reasonably have known about the problem.
Before agreeing to provide the warranty, Hollard requires various inspections be performed. Where there are minor defects that would not cause Hollard to decline to provide the warranty, the seller can either opt to repair these or have them fully disclosed and listed as excluded from cover on the warranty certificate issued. “Our research shows that buyers would rather know what they are getting themselves into than have unpleasant surprises later. Most people expect a house to have some problems,” emphasises Griffiths. “Through the warranty there is full disclosure and protection from the unknown.” The warranty certificate issued indicates that the cover will be in place once the sales transaction is completed.
In line with current regulations that govern the provision of financial advice, estate agents will introduce the product, and be requested to refer any questions about the product to Hollard. “Premiums are determined on an individual basis, but sellers can typically expect to pay around R12 000 for a warranty on a R1 million home, R17 400 for a R2 million home and R27 500 for a R5 million home” he says.
Adds Dobrescu, “Ultimately the Home Warranty makes the property buying process fairer and more transparent for both buyer and seller – it is a product that every seller of a well looked after home should attach to their ‘for sale’ sign.”