Insurance Chapter 10

Difference between short-term between Long-term Insurance

Short-term Insurance:

• In case something happens.

• Might not ever happen but the insured wants to manage the risk in case.
• The insured wants to be indemnified.

Long-term Insurance:

• It will happen.
• Death and/or retirement.
• We want to be assured that our loved ones will be fine when we die or retire.

A monthly premium is paid by the individual/business and that passes the risk to the insurer. The
premium 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▸ Outdated trading stock.

▸Outdated machinery.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:

- 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.

Over-insured:

- 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 vice 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.

▸ National or Provisional government officials.

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.

▸ 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 South African Police.

▸ If the claim is submitted 12 months or more after it occurred.

Advantages of COIDA

• Financial assistance for medical expenses

• Better medical care for employees.
Disadvantages of COIDA

• Employer needs to ensure all safety requirements are in place. It can be expensive for the
business. (Legal requirement)

Road Accident Fund

This insurance cover all road users in SA. It assists people who are injured in a motorcar accident. It
pays for medical claims and rehabilitation.

This insurance offers indemnity to person guilty of causing the accident.

Contribution to RAF is done by way of a levy on petrol and diesel.

RAF pays out to any person injured in an accident. (pedestrian/passenger)

The family of a deceased victim may also claim.

Non compulsory Insurance

Crop Insurance

For farmers to cover risks on income generating assets. These risks include drought, floods, fire heat
waves etc.

Fidelity Insurance

To protect businesses against dishonest employees. (Theft or fraud)

Money-in-transit insurance

To protect businesses that handle a lot of money. This covers any potential loss that could happen
when moving money from the business to the bank.