Insurance

Difference between short-term and long-term insurance

Short-term insurance: Long-term insurance:
IN case something happens. There is It will de nitely happen. Retirement
no guarantee that the asset will be and death are certain.
damaged but in case it does, we take
out this insurance.

Non-insurable risks
• Things we cannot insure against.
War. Technological changes.

Bad debt. Unlawful acts.

Business risks. Climate change.

Trading stock becoming out of date.

General insurance concepts

Indemnity
• Short-term insurance.
• Peace of mind knowing you will be put back in the same nancial position you were before an incident occurs.
• The insured will not make a pro t or a loss from insurance.

Security
• Refers to long-term insurance.
• Gives nancial security to insured at retirement or to the insured’s dependents in the case of death or
disability.

Average clause
Under-insured: Over-insured:
• If the insured hasn’t paid the premium that is • If the asset is insured for more than its value.
su cient to cover the full risk. • The insured is paying a higher premium than
• If the monthly premium is too low, the full value of necessary.
the loss will not be indemni ed. • The insurance company will only pay out the value
of the asset and will keep the extra money.

Excess
• The rand amount of % of the loss that the insured needs to pay themselves.
• The higher the excess, the lower the premium.

Proximate clause
• The insurance company will check if a loss is due to the incident reported or another incident.
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Subrogation
• If the insured person claims from one insurance company, they cannot claim from the other parties insurance
too.
• The insured cannot make a pro t or a loss from insurance.

Cession or to cede the policy

• Long-term insurance builds up into an endowment fund.
• If an immediate need arises for the money, the policy can be signed over as collateral to get a loan.

Requirements of a valid insurance contract

Absolute good faith
• Utmost honesty.
• Requires the insured to disclose all information that can a ect risk.
• If the insured is not honest, the policy is declared null and void and no premiums will be paid back.

Insurable interest
• Must be able to prove that you will lose out nancially if an incident occurs.

Contractual capacity
• The person entering into the contract is over 18 and of sound mind.

Types of insurance
Unemployment Insurance Fund (UIF)
• Gives short-term relief to workers when they are unemployed or unable to work.
• In 2020:
1. The UIF paid workers who couldn’t receive salarues due to COVID-19.
2. “Parental leave” was instituted and stated the following:
- Father or someone in a same sex marriage is entitled to 10 consecutive days from the UIF.
- Adoption leave (child under 2) one parent can claim from UIF.
- Surrogate pregnancy, one parent may also claim.
• Contributions are made by the employee and employer. 1% of the gross salary is deducted from the employee
and the employer matches the amount.
• The ceiling amount for contributions is R14 872 per month.
• The ceiling amount for claims is R17 712 per month.
• The following people cannot claim from the UIF:
1. Employees who work less than 24 hours a month.
2. Employees who only earn on commission.
3. Employees of the National or Provincial governments.
• Civil servants and foreigners are now covered by UIF.
• Domestic workers are covered by UIF but the employer must ensure they are contributing.
• The rules for claiming are:
1. To claim for the maximum period, the employee must have contributed for 4 years.
2. Gives relief to dependants of an employee that has died.

Compensation for workrelated Injuries and Diseases Act (COIDA)

• Used to be called the Workmans Comensation Act.
• If a worker becomes ill, disabled or injured while at work, they can claim from this act.
• If the employee dies due to something work related, the family can claim from COIDA.
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 • Every employee registers with COIDA and an annual amount is paid depending on the employee’s income and
the risk related to their job.
• The amount a worker receives is dependent on their salary.
• How do you claim from COIDA?
1. The employee must inform their employer as soon as possible after the injury occurs.
2. The employer has 7 days to report it to COIDA and give them the necessary documentation.
• When will claims not be paid?
1. House workers in the private sector may not claim.
2. Members of the South African army and South African Police Service may not claim.
3. If the claim is older than a year it is automatically rejected.

Advantages of COIDA Disadvantages of COIDA

Employee receives nancial assistance. Employers need to comply by many safety

requirements.
Better medical care could mean that employees come
back to work sooner.

Road Accident Fund (RAF)

• Covers all South African road users.
• Pays for medical bills and rehabilitation for anyone injured in a motor vehicle accident.
• If soomeone dies in a motor vehicle accident, the fund will pay out to dependants.
• Contributions are made in the petrol and diesel price.

Non-compulsory insurance
• Policies di er from insurance companies.
• The insured needs to evaluate which policy and insurance company is best suited for them.

Business Insurance / Commercial insurance

• Can include the following:

Theft Damages due to natural disaster

Burglary Partial or total loss of income if the busines cannot

funcion.
Public liability
• Fire insurance normally forms part of this policy.
• The contents of the business can be insured. We look at two aspects:
1. Any content inside the business like machinery or appliances will be paid out.
2. If inventory gets damaged, the iron safe clause comes into play. There needs to be a comprehensive and
updated list of inventory that cannot be damaged in a re for the insurance company to pay out.
• Damage to the structure of the building is also included.
• Normally banks require this if there is a mortgage bond attached to the building.
• The more ammable the structure, the higher the premiums and the nature surrounding the building also
a ects the risk.

Household insurance
• Content insurance: looks at everything inside the house. These things will be replaced if they are damaged in
any way.
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 • Structural insurance: looks at the actual building. If the house is destroyed, the insurance company will pay
out the value of the home.

Vehicle insurance
Fully comprehensive: Third party, re and theft:
• The insured’s vehicle and the other vehicle • Older vehicles.
will be repaired in the case of an accident. • Will only cover the following:
• Also covers theft and re damage. 1. The other car in case of an accident.
• Everything that needs to be covered has to 2. The value of your car if it is stolen.
be disclosed to the insurance company. 3. The value of your car if it is damaged by
re.

Money-in-transit insurance
• If the business handles a lot of cash, this insurance covers the trip from the business to the bank.
• Some businesses prefer to use a third party to ensure the money gets to the bank safely.

Fidelity insurance
• Covers the business for nancial losses due to a dishonest employee.
• The policy can be taken out for the employees who deal with money in the business or a blanket policy for
everyone.

Crop insurance
• Covers farmers for any damage to crops (their income bearing assets).
• Additional cover can be taken out to cover livestock.

Advantages Disadvantages
The insured can transfer some of the risks to the
insurance company which then provides Insurance can work out to be expensive, especially if
indemni cation against a large number of risks, e.g. the insured never claims.
re, natural disasters etc.
Peace of mind, not having to worry about
uncertainties. The insured must check that the insurance he/she
In some cases a person cannot buy a car / house, requires covers all the circumstances / events for
unless there is insurance to cover the risk for the which it is needed to ensure complete peace of mind.
bank while it nances the asset.
Cash back bonuses from some insurers if no claims Insurers often look for every excuse possible not to
are made. pay a claim. Unfortunately, this is probably because
It can be cheaper to pay for insurance rather than so many people commit fraud by claiming for losses
paying the expense if the event takes place. that were not su ered.
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 Advantages Disadvantages
Life assurance ensures that dependants can continue
to enjoy a good standard of living in the case of the
insured becoming disabled or in the case of death.

Proper research needs to be undertaken before life

Mortgage loans usually have a life assurance policy
assurance is taken out. There are many options
linked to it. This settles the outstanding amount on
available and if you don’t choose the right one, it
the bond if the bondholder or spouse dies and
could be a waste of money.
provides peace of mind to the family.
Life assurance is a long-term investment that allows
the insured to make provision for future events after
the date of the policy maturing.
Medical aid is a form of assurance that gives the
insured peace of mind knowing that health expenses People think that you can’t over-insure when it
will be covered. comes to life insurance. But there are certain laws
The life assurance sector of South Africa is highly that specify the max allowable sum to be paid out
regulated, and it allows the insured to save money and insurance brokers often don’t mention this to
via a secure long-term vehicle, rather than to make clients.
risky decisions for short-term gains.
Policies can be ceded to obtain a loan if the insured A relatively large portion of the monthly premiums
is in urgent need of money. are for administration and handling fees. If the
Retirement annuities provide tax bene ts. insured is not aware of this, they might have
expectations of capital growth that may not be met.
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