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.
Excess Clause
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 the future for letting them know rather than quarrel with you. Such an 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 the 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! The excess must be charged on the N200,000 as follows:
Option A
Excess to be deducted = N50,000
Option B
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:
Option A
Excess to be deducted = N50,000
Option B
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.
It is extremely rare to find a motor vehicle Insurance 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%
Computation
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 Insurance 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 becomes 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 a restriction of responsibility for death or injury to a Third Party or property harm. For death, injury to Third Party, the sum payable is limitless. By limitless, it implies the sum payable is chosen by the court which relies upon the monetary capacity or dependants of the person in question.
In the property harm area, the cutoff is N1,000,000.00 for any one event. Regardless of the mishap or harm to the Third Party vehicle, the sum the guarantor will pay is N1,000,000.00. However, at the installment of extra superior, the Third Party Liability Limit can be expanded.
All in all, after you have accepted your strategy record from your guarantor, guarantee you survey it’s anything but a merchant to do the work for you to guarantee you are sufficiently covered.
Envision subsequent to paying such a huge amount to guarantee your vehicle and the guarantor thoughtlessly adjusted any of the abovementioned. Take for example, fix a figure on the Third Party Death Limit rather than Unlimited. That is deplorable. I could review a specific insurance agency once gave my customer an arrangement record with the Death Limit of N50,000,000.00.
I dismissed it and requested that equivalent ought to be corrected to the standard configuration. The ramifications is that if a protected vehicle caused a mishap that prompted the passing of an unmistakable individual and the court decided that the sum payable on his life is N200,000,000.00. The inquiry will be the thing would you say you will do?
Presently the straightforward answer is that you can do literally nothing, the arrangement archive will be the central consideration as it as of now fixes the sum at N50,000,000.00. The guaranteed should discover a method of hacking out the equilibrium of N150,000,000.00! You can see the need to survey your strategy archive appropriately.
In the event that you feel this is excessively specialized for you to do, it is better you hand over your Insurance Policy to the protection merchant who goes about as your legal advisor. The solitary contrast is that you are not in any event, going to pay him, the insurance agency pays him to work for you