Certain terms in your insurance policy document, be it motor insurance policy document or others are determinant factors as to if your claim will be paid or not. This post will highlight only four of such.
You have a Comprehensive Motor Policy and are so proud of yourself. Your mind is at rest and all seems good. But, do you know that there are certain terms in that your policy document? Terms your insurance agent might not be patient enough to show you? One thing about such terms is that they are no threat unless there is a loss and you need to make a claim. You will feel betrayed and disappointed to be told that certain terms are standing between you and your cheque.
Here are the terms:
Excess is the part of each and every claim you as a policyholder is expected to bear. Excess makes you the policyholder to be a co-insurer on the policy. It instills into you, the duty of care i.e. once you know that you are to bear a certain percentage of any claim, it is natural to act with due care. Excess is a big part of insurance and it is available in most policies except for liability policies.
Most insurance officers/marketers don’t like talking about excess because it discourages people from finally releasing their cheques. However, it is better to educate your prospects/clients about it so that they are prepared for it beforehand. They will thank you in future for letting them know rather than quarrel with you. Such act is a reason why most people complain that insurance people are fraudsters. They will not let you know the bitter side of the sweet tale they are telling.
Excess is usually graduated i.e. flat amount or percentage (e.g. N50,000 or 5% of claim, whichever is higher). For example, assuming you sustain a loss of N200,000. You will be expecting the insurer to write you a cheque of N200,000; right? Wrong! Excess must be charged on the N200,000 as follows:
Excess to be deducted = N50,000
5% of claim
N200,000 x 5% = N10,000
From the foregoing, the absolute value of N50,000 will be deducted from the claim (the condition is whichever is higher). Therefore N150,000 will be paid to you on the claim, as follows:
N200,000 – N50,000 = N150,000.
On the other hand, if the claim is N1,500,000 the position will be different.
Let see the two options:
Excess to be deducted = N50,000
5% of claim
N1,500,000 x 5% = N75,000.00
Now from this, N75,000 is higher than N50,000, so it will be deducted from the claim. N1,425,000 will be the amount payable out of the N1,500,000 as follows:
N1,500,000 – N75,000 = N1,425,000.
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It is extremely rare to find a motor vehicle policy without an excess imposed. Nevertheless, the excess can be removed by applying for Excess-Buy-Back.
Excess-Buy-Back is a clause that makes it possible for excess to be removed from a policy at the payment of an additional premium. For instance, a car of N200,000 @ 5% the premium is N100,000. If he requested for Excess-Buy-Back, then it will look like this:
Value = N2,000,000
Rate = 5%
Premium = N100,000
Excess Buy Back = 0.5%
Premium = 2,000,000 x 5% = N100,000
Excess-Buy-Back = 2,000,000 x 0.5% = N10,000
Total Premium = N100,000 + N10,000 = N110,000
Tires are not covered
Under this policy damage to tires are not covered. It means if you report to your insurer that your tires got damaged because you drove your vehicle on broken bottles or some objects. If you report such, it would be thrown out! Nevertheless, if the car was involved in an accident and your tires are damaged in the process the claim will be paid in full and the tires replaced. In the policy document, this exception is written as:
“The Company shall not be liable to pay for damage to tyres unless the Motor Vehicle is damaged at the same time.”
Wear and Tear not covered
Wear and tear, mechanical or electrical breakdown, failure or breakages are not covered. The purpose of Motor Insurance to provide indemnity for any loss or damage consequent upon any accident, hire, explosion or theft. In the policy document, this exception is written as:
“The Company shall not be liable to pay for consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages”
However, a claim become payable if the wear and tear or mechanical or electrical breakdown etc led to an accident. It is written in the policy document thus:
“The Company will indemnify the Insured against loss of or damage to the Motor Vehicle and its accessories whilst thereon by accidental collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear”
Limit of Liability
For every motor policy ever issued there is limit of liability for death or injury to Third Party or property damage. For death, injury to Third Party, the amount payable is unlimited. By unlimited, it means the amount payable is a decided by the court which depend on the financial capability or dependants of the victim. On property damage section, the limit is N1,000,000.00 any one occurrence. No matter the accident or damage to the Third Party vehicle, the amount the insurer will pay is N1,000,000.00. Yet, at the payment of additional premium, the Third Party Liability Limit can be increased.
In conclusion, after you have received your policy document from your insurer, ensure you review it or get a broker to do the job for you to ensure you are adequately covered. Imagine after paying so much to insure your car and the insurer carelessly altered any of the above. Take for instance, fix a figure on the Third Party Death Limit instead of Unlimited. That is disastrous. I could recall a certain insurance company once gave my client a policy document with the Death Limit to N50,000,000.00.
I rejected it and demanded that same should be amended to the standard format. The implication is that if an insured car caused an accident that led to the death of a prominent individual and the court ruled that the amount payable on his life is N200,000,000.00. The question will be what are you going to do?
Now the simple answer is that you can do absolutely nothing, the policy document will be the deciding factor as it already pegs the amount at N50,000,000.00. The insured will have to find a way of coughing out the balance of N150,000,000.00! You can see the need to review your policy document properly.
If you feel this is too technical for you to do, it is better you hand over your insurance businesses to the insurance broker who acts as your lawyer. The only difference is that you are not even going to pay him, the insurance company pays him to work for you.
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