Cont. Chapter 9

Cont. Chapter 9

1. Requirements of a valid insurance contract

   • 1) Absolute good faith
     • Utmost honesty
     • Requires insured to disclosure all relevant information that may affect the risk
     • If questions are not answered honestly and accurately the risk will not be covered
       • Policy will be declared null and void
   • 2) Insurable interest
     • have insurable interest if it can be proved that he/she will sustain a financial loss if a certain event takes place.
     • Examples
       • A person has insurable interest in his own assets ( belongings)
       • A person has insurable interest in his/her own health or in his/her own life
       • A Married person has insurable interest in the life of the spouse
       • Business partners have insurable interest in lives of co-partners because
         • Jointly and separately liable for the debts of the business
       • Creditor- in life of his debtor
   • 3) Contractual capacity
     • person entering into the insurance contract is of legal ages and sound mind
       • in South Africa 18

2. General Concepts relating to insurance

   • 1) Indemnification
     • Provides the insured with peace of mind of knowing that should the insured asset be damaged
       • insured will be adequately compensated
     • insured will not suffer a loss , nor will (or may) make profit from insurance
     • refers short term insurance
   • 2) Security
     • long term assurance
     • aim is to provide financial security to the insured when he/she retires or when he/she dies/ disabilityy
     • group life cover provides security to the family in the form of life assurance
       • premiums are lower than normal life assurance
         • because large number of employees take out same cover
   • 3) Average clause
     • if asset was not insured for correct value
       • 1) Asset is under-insured
         • Insured has not been paying a premium that is sufficient to cover the full risk
           • See examples on page 165
       • 2) Over Insurance
         • Refers to a situation where the asset insured for more than the current value
           • insured pays a monthly premium higher than what is necessary
             • page 165
   • 4) Excess
     • the rand amount or % of loss/ claimed specified by the policy.
       • Responsibility of insured to pay.
         • excess amount is can be low
           • monthly premiums will be higher
           • high excess
             • monthly premiums will be lower