Insurance
Chapter 9
Page 122 - 129
Short-term vs. Long-term Insurance
Short-term
Insurance:
Long-term
Insurance:
o
o
o
o
IN case something
happens.
Might not ever
happen but the
insured wants to
manage the risk in
case.
The insured wants to
be indemnified.
o
o
It will definitely
happen.
Death and/or
retirement.
We want to be
assured that our
loved ones will be
fine when we die or
retire.
Premium
A payment made to the insurance
company every month to
transfer the risk.
It is based on the value of the
asset and the risk associated.
Non-insurable risk
War.
▸ Bad debt.
▸ Business risks.
▸ Outdated trading stock.
▸ Outdated machinery.
▸ Unlawful acts.
▸ Climate change.
▸
Concepts regarding
insurance
Indemnity
Gives the insured peace of mind
knowing they will be sufficiently
compensated for any losses due to
damages or destruction.
▸ They will be put in the same
financial position they were in
before the event.
▸ You don’t make a profit or a loss.
▸
Security
Specific to long-term insurance.
▸ Give financial security to the insured
at retirement.
▸ Give financial security to the
insured’s dependants when they die
or if they’re disabled.
▸ The Group Life Policy at work can
give security to the family.
Premiums are usually lower.
▸
The Average Clause
Under-insured:
Over-insured:
o
o
o
Not paying enough to
cover the full risk.
If the monthly
premium is too low,
the full value of the
loss will not be
indemnified.
o
o
The asset is insured
against more than its
present value.
Paying a higher
premium than
necessary.
If there is damage,
you will only get what
the asset is worth, no
more.
Excess
Rand value or % of the loss/claim
that the insured must pay.
▸ The higher the excess the lower
your premiums and visa versa.
▸ The amount that is not covered by
the insurer.
▸
Proximate Clause
▸
If you claim for a loss, the insurer
will check that it was caused due to
the event and not a secondary
event.
Subrogation
If you claim from your insurance
company, you cannot claim from the
guilty party’s insurance company
too.
▸ Your insurance company can claim
from the guilty party’s insurance
company, not you.
▸ Applies mainly to car insurance.
▸
Cession or to cede the
policy
Endowment policy builds up a cash
worth over time.
▸ If an immediate need arises the
policy can be signed over to creditor
as collateral to get the loan.
▸
Requirements of a
valid insurance
contract
Absolute good faith
Utmost honesty.
▸ Must disclose all relevant
information that affects risk.
▸ If you aren’t honest the policy is
null and void.
▸ No premiums will be given back.
▸
Insurable interest
▸
Must prove that you will sustain
a financial loss if a certain event
takes place.
Contractual Capacity
Must be of legal age and sound
mind.
▸ Legal age: 18
▸ Sound mind: no mental illness.
▸
Types of insurance
Compulsory:
▸ UIF
▸ COIDA
▸ RAF
Non-compulsory:
▸ Commercial
▸ Household
▸ Vehicle
▸ Money-in-transit
▸ Fidelity
▸ Crop
Unemployment Insurance Fund (UIF)
▸ Gives short-term relief to workers when they are
▸
▸
▸
▸
▸
▸
unemployed or if they are unable to work.
Contributions are made by the employer and
employee.
1% of gross salary is deducted from the employee’s
salary and the employer matches this amount.
The employer must pay this to SARS.
The ceiling amount for contributions (in 2020) is
R14 872 a month, but the ceiling for benefits (in
2020) is R17 712.
Gives relief to dependants of employees that
contributed to the fund if they die.
Any UIF benefits that are still owed to a person
when they die is paid out to dependant.
Changes to UIF in 2020
▸ In 2020, the UIF paid workers because businesses
couldn’t generate income due to COVID.
▸ In 2020 “parental leave” was instituted (must be
employed for 13 weeks) and a maximum of 66% of
the income threshold benefit (±R17 712) could be
claimed if:
1. A father or someone in a same sex marriage,
that becomes a parent, can claim for 10
consecutive days.
2. Adoption leave (for one parent) can be claimed
if the child is 2 years or younger.
3. One parent can also claim if a surrogate
parenthood was used.
Who is excluded?
▸ Employees who work less than 24 hours a month.
▸ Employees who only earn commission.
▸ Employees of the National or Provisional
government.
Who is now included?
▸ Civil servants and foreigners who work in the
country.
▸ Workers doing learnerships.
▸ Domestic workers (the employer must
contribute).
Rules for claiming
▸ To claim for the maximum period, you
must have been working for at least 4
years.
▸ The maximum claim period is 365 days.
▸ If you haven’t worked for 7 days (due to
illness) and your employer doesn’t pay
you, you can claim from UIF.
Compensation for Work-related
Injuries and Disease Act (COIDA)
▸ Used to be Workman's Compensation Fund.
▸ If you become injured, ill or disabled while at work,
▸
▸
▸
▸
you can claim from COIDA.
If an employee dies from something work-related,
their dependants can claim from COIDA.
Employers register with COIDA fund and an annual
amount is paid according to the employee’s income
and the risk associated with the job.
The employer must ensure that the minimum safety
regulations are followed. Occupational Health and Safety Act
The amount received is a % of the salary the person
earns.
How do you claim from
COIDA?
Employee must inform the employer
as soon as possible after the injury
occurs.
▸ The employer must (within 7 days)
send the claim, medical report and
other documents to the
Compensation Commissioner.
▸
When will claims not be paid?
House workers in the private sector
may not claim.
▸ Members of the South African Army
and SAP.
▸ If the claim is submitted 12 months
or more after it occurred.
▸
Advantages and disadvantages of COIDA
Advantages
Disadvantages
If an employee
becomes hurt or ill from
work, they will receive
financial assistance.
There are many safety
requirements that
employers need to put
in place. This can be
difficult and expensive.
Better medical care for
employees means they
will probably return to
work sooner, which is
good for productivity.
Road Accident Fund (RAF)
▸ Covers all road users in South Africa.
▸ Assists people who have been injured in a
motorcar accident and pays for
rehabilitation and medical claims.
▸ Offers indemnity to the person who is
guilty of the cause of the accident so the
injured person or their family cannot
claim from the guilty party.
▸ Contributions are included in the petrol
and diesel price.
RAF will pay in the following instances:
Any person injured in a
motorcar accident, passenger or
pedestrian.
▸ The family of a deceased victim
may claim.
▸
Non-compulsory insurance
▸ Various policies available for businesses and
individuals.
▸ Different insurance companies offer different
policies.
▸ When insurance is taken out, the insured pays a
premium to cover the risk.
▸ Premiums depend on the risk profile of the client
and the value of the asset.
Short-term insurance
The more valuable the article, the
higher the premium.
▸ The greater the risk that the article
can be stolen or damages, the
higher the premium.
▸
Long-term insurance
The greater the amount of life
insurance, the higher the premium.
▸ If a person is in a risky profession or
hobby or even lives dangerously, the
higher the premium.
▸
Remember
▸
If the person or business doesn’t
declare the whole truth or doesn’t
adapt the policy according to
changing circumstances, the
insurance company doesn’t need to
pay out.
Business / commercial insurance
▸
Can include the following:
1. Theft
2. Burglary
3. Public liability
4. Damages due to natural disasters
5. Partial or total loss of income
Business / commercial insurance
▸ Fire insurance usually forms part of this
insurance policy.
▸ The contents of the business are covered
against fire by content insurance.
▸ Insurance for stock includes an iron safe
clause.
▸ Damage to the structure of the building is
also covered, this is enforced by banks
when a bond or mortgage is taken out.
Household Insurance: Contents
insurance
▸ A household policy usually includes all
household assets which carry a risk due
to the consequences of burglary, accident
caused by fire, lightening, floods etc.
▸ Assets could vary.
▸ If the insured person has visitors, their
possessions could also be covered (if the
policy allows it).
Household Insurance: Structure
Insurance
▸ Structural risks that are covered by
insurance if it is destroyed by a fire,
geyser burst or break-in etc.
▸ Often arranged by banks if the mortgage
is not yet paid off.
▸ Liability insurance is usually a part of this,
it will cover the owner against any losses
suffered by visitors or workers.
Vehicle Insurance: Fully comprehensive
The insured’s car and the other vehicle
will be repaired in case of an accident.
▸ In case of fire or theft, there will be full
indemnity.
▸ Anything extra (on the car) should be
specified or it won’t form part of the
policy.
▸ Insurers can adapt the policies to fulfil
their specific needs.
▸
Vehicle Insurance: Third Party, Fire and
Theft
▸ The older the vehicle, the lower the value.
▸ If a vehicle is old, it might not be
financially viable to pay fully
comprehensive insurance.
▸ If the driver is blamed for the accident,
the insurer will pay for the other drivers
vehicle (third party).
▸ If the vehicle is stolen or damaged due to
fire, the insurance company will also pay
out.
Money-in-transit Insurance
If the business handles a lot of cash,
it is smart to take out this insurance.
▸ It covers any losses that could
happen between the business and
the bank.
▸ Some businesses choose to use a
third party for this instead.
▸
Fidelity insurance
Taken out to protect the business
against financial losses caused by a
dishonest employee.
▸ Theft, fraud etc. can be covered.
▸ It could be for one or two
employees only or general cover for
the whole business.
▸
Crop Insurance
Specifically for farmers and is taken
out to cover their income-generating
assets.
▸ Covers drought, heat waves, floods,
hail, frost and fire.
▸ Additional insurance can be taken
out for livestock as well.
▸
Advantages and Disadvantages of short-term
insurance
Advantages
Disadvantages
Can transfer risk to an
insurance company that will
provide indemnification.
Peace of mind.
Can be very expensive,
especially if you never claim.
Sometimes a prerequisite for
buying a car or house.
Must check that your
insurance company covers all
events that are needed.
Insurers often look for every
excuse not to pay out.
Cash back bonuses from
some insurers.
It can be cheaper to have
insurance than pay for these
things yourself.
Advantages and Disadvantages of long-term
insurance
Advantages
Disadvantages
Ensures dependents can enjoy a
good standard of living in case the
breadwinner dies or becomes
disabled.
Proper research must be
undertaken. If not, it can be a waste
of money.
Mortgage loans usually have life
assurance linked to it.
Allows the insured to make provision You can over-insure.
for future events.
Medical aid forms part of assurance
and provides peace of mind.
Allows insured to save money.
Can be ceded to obtain a loan if
needed.
Tax benefits.
Large portions of premiums are
taken for management and admin
fees.