Insurance 101: Your Policy Document No Longer Has To Be Headache Inducing
A new year typically marks a new beginning and a time to set in motion important insurance and planning decisions that may have an impact on how well you fare during the year. Life in itself is risky and a lot can happen over the course of the year, some being unexpected, and with high financial implications. While planning for the year, it is important to take the protection of your financial wellbeing into cognizance, as a means to financial security. This is where Insurance becomes a vital means of risk mitigation, especially against the backdrop of high costs associated with replacing lost items in the face of today’s economic outlook.
However, while some understand the importance of insurance, understanding its intricacies might sometimes be a challenge. For the next couple of weeks, we will be educating you not only on the importance of taking up insurance policies but also on the technical terms you may come across in your policy documents or in your interactions with insurance agents.
Sum Insured: The Sum Insured is the agreed value attached to a property or subject matter of insurance at the inception of an insurance cover. For example, if the subject matter of insurance is a home, the sum insured will typically cover the cost of rebuilding your home and other contents that make up your home.
Current Market Value: This is the current price of an insured asset in its state at the time of loss. Basically, it is the amount payable for the subject matter of insurance in its condition at the time the loss/damage occurs. In the event of loss, the market value paid by the insurer differs from the market value of your asset as at the time of policy purchase. This is because assets depreciate over time thus, making market value non-static. For example, the cost of your vehicle at the time you chose to purchase an auto insurance cover may have spiked by the time you have course to make a claim later on in the year. Hence, the price at the time of making the claim is the ‘current market value’.
Policy Excess: This is the amount that the policyholder bears on each and every claim made, usually based on the loss experience, sum insured, applied rate, amongst other things. Many insurance policies include an excess, which is a way of you accepting a small portion of risk yourself. Excesses are usually deducted from your claims. In other words, in the event a claim occurs, there is a sum that is deducted from the Sum Assured, which is the cost of your own portion of the risk that has been insured. Excess should be agreed between the insured or their representative and the insurer, to avoid dispute at the time of claim made for loss.
Contribution/Betterment: This is the amount paid when a policyholder decides to replace a lost or damaged insured subject with something that is ‘better’ or of ‘higher grade’’ than the lost/damaged subject. In this case, the policyholder is responsible for the difference between the original item’s value and the cost of the new item. Contribution also comes to play if the same property/item is covered by more than one insurance policy at the same time.
Insurable interest: An insurable interest in simple term is the legal right of an insured to a property/life covered under an insurance policy. In insurance, it is critical that the insurance asset belongs to the person seeking to procure insurance cover for it. For example, a tenant cannot insure the property of his/her landlord, but the content in the home, for which he/she has emotional attachment. This is very important in insurance contracts to forestall moral hazard meaning that the policyholder (or the beneficiary) must be the very person who stands to suffer a direct financial loss if the event that is being mitigated against does occur. Basically, it protects against intentional harmful acts against the insured subject.
Indemnity: This is the fundamental principle of insurance that says that the insured are to be put at the exact position they were prior to the loss. Indemnification principle assumes that the insured are not to profit from their insurance policy. This means that insurance policies should be designed to cover the value of the at-risk asset appropriately.
While the understanding of the technicalities may sometimes be complicated, Leadway Assurance is here to guide you through getting the best insurance coverage for you, your assets and your family. With over four decades in the business of offering financial protection to millions of Nigerians, Leadway Assurance is a trusted partner that ensures you and your assets are adequately protected.
For more information, please call our agents on (01) 2800 700, 2800 701, 08129997037; or send an email to: Lcs@leadway.com for more details.