Business

Terms commonly used in insurance

PIA FORUM with DOREEN KAMBANGANJI
MORE often than not, most of us choose not to read the insurance policy document and yet this is the basis of the insurance contract and this can lead to disappointments when making a claim. This is partly because terms and conditions are usually long and sometimes contain words and phrases that we are not familiar with. In this article, we talk about some of the frequently used terms in insurance and hope we can utilise this information as we renew our policies.
Act of God
Any incident that is not man-made, which causes destruction to property, crops, injury, death such as earthquakes, lightening, etc.
Excess
This is the agreed amount of money you take up as a contribution in the event a claim is made. This is agreed upon before you sign the contract and it is usually 10 percent of the total cost in motor insurance. Without an excess, claims would increase dramatically and, ultimately, the cost of insurance would have to rise.
Exclusion
The policy document states the type of insurance cover the insurer is providing for you. However, it also does mention the nature of incidents or claims that it will not cover, for example, property insurers may not cover earth movements or floods. The incidents not covered in your cover are referred to as exclusions. Some exclusions entail that an insurer will not pay a claim while others will penalise an insured party.
Extensions
This is the cover that is in addition to the standard insurance cover offered. You can choose to add this cover to the standard cover but this will be at an added premium.
Limit of Indemnity
The limit of indemnity is the highest amount that an insurer will pay out for any one claim and usually within any policy period. Unlike a Sum Insured an Indemnity Limit, however, may be specified as any one occurrence limit with no limit as to the total cover provided during the policy year.
Material Fact
This refers to important information about a person or property that can influence the insurer’s decision whether to accept a risk to insure or whether to extend more conditions or even increase the premium.
No Claims Discount
A no claims bonus discount can get you a big reduction on your car insurance. For every year, you have insurance cover and do not make a claim, you will get a discount on the following year’s premium. Some insurers will say if you go a year without making a claim you will get a discount of around 30 percent off your premium, while someone in the second year of driving could get around 40 percent off. After five years of no claims, drivers can receive a maximum discount of around 60 percent or 65 percent but this differs from insurer to insurer.
Third Party Liability
Third party liability is cover to compensate a third party on your behalf and in Zambia, it is mandatory to have as a minimum third party insurance cover for all vehicles. Third party cover as the name suggests does not cover you the insured but the person who is affected by acts committed by the insured party.
Subrogation
This is the right for the insurance company to pursue a third party that caused an insurance loss to the insured. This is done to recover the amount of the claim paid to the insured for the loss or damage. In property insurance, the insurer of the property owner may make a claim from the tenant or the tenant’s insurer if they were negligent or caused any damage to the insured property.
Sum Insured
This is the maximum amount (limit) the insurer will pay or settle in the event of a claim. This is the money you will get to replace your property or business. However, be cautious not to over insure as the insurance company will pay out your claim on the correct value of your property. Remember, insurance takes you back to the position before you suffered a loss and is not meant to profit you. If, for instance, you have insured your car at K45,000 but the market value of the same car is K35,000, the insurance company will pay you K35,000 even if you were paying higher premiums because that is the cost it will take you to replace your car.
Repudiation
This refers to a decision by an insurer to refuse to pay a claim for a particular reason, for instance, when the policy document does not cover the event which led to the loss or damage. For instance, you have an insurance cover for your car that covers fire, but if that fire is caused by a riot, which is not covered by your policy, then the insurance may repudiate your claim.
For more information or queries, contact us on email: pia@pia.org.zm or call us on 0211 251008. You can also visit our website: www.pia.org.zm.

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