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Insurance Policies Explained | Reid RaetzerReid Raetzer

Insurance Policies Explained

Insurance Policy Wording Explained

At Reid Raetzer, our philosophy of service excellence and attention to detail extends even to insurance policy wording. This means we carefully review each individual insurance policy before offering it to you.

When it comes to insurance policy wording definitions, it’s important to remember that insurance policies are in essence legal documents; a contract where the insurance company charges a premium to transfer risk from an individual or company to itself. The insurance company therefore needs to be fully informed on the risk it’s taking on in order to charge the correct premiums and to pay claims in full.

Here is a simplified guide to help you understand your insurances and make sure you’re adequately covered in any event.

The problem of 'Average'

The following classes of insurance are subject to the specific condition of average: Fire, Building Combined, Office Contents, Business Interruption / Loss of Profits, Accounts Receivable, Electronic Equipment, Glass, Business All Risks and SASRIA.

A typical example of this would be that if the insured sum was R 1 000 000 when it should have been R 1 500 000, you would have to bear 1/3 of any loss yourself.

Assuming a loss of R 600 000 occurred, the settlement would be calculated as follows:

(R 1 000 000 / R 1 500 000) x (R 600 000 / 100) = R 400 000

In other words, of the R 600 000 loss your Insurers would pay you R 400 000. You would have to pay the remaining R 200 000.

It is clearly essential that the sums insured on your policy reflect the correct replacement value.

The implications of Value Added Tax (VAT)

In terms of Part II 8.8 of the VAT Act of 1991 if a vendor receives indemnity payment under a contract of insurance, such indemnity will be deemed to be a consideration (as defined in the Act) received by the vendor.

That means if you’re a vendor, you’ll have to pay VAT on any claim paid to you or on your behalf. That’s why it’s so important that all sums insured or limits of indemnity include VAT.

Warranties, conditions, exclusions, first amount payable etc.

All insurance policies have warranties, conditions and exclusions that you must understand before you agree to them. If you have any questions, please talk to us.

Business Insurance Policy Wording

For a simplified version of the insurance policy wording and definitions for our business insurance offering, please visit our business insurance section.

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