Insurance Pitfalls - What You Need To Know

It is common to assume that once you have arranged insurance cover for your car, home or household contents, any claims you make for damage or destruction to your assets will be paid according to the amount of claim. This is not necessarily the case.

Many complaints are lodged with the Office of the Ombudsman for Short Term Insurance every year because of policy holders’ claims being paid only partially or not at all. A substantial portion of these complaints are misguided, because faults are unwittingly made by policyholders: under-insurance, incorrectness of information, and similar causes.

To ensure that you don’t end up at the door of the Ombudsman through a mistake of your own, here are some of the pitfalls you may want to try to avoid when taking out insurance:

Under-insuring your asset

This occurs when the current replacement value of the insured asset is higher than the amount of cover you specify. It is unfortunate, but many people tend to under-insure their possessions in the desire to save on their insurance premiums. Another reason why under-insurance happens is that people often forget to update their policies from time to time to ensure that the sum insured remains abreast with increased replacement values. The consequence of under-insuring is painful: when you submit a claim, you will not receive the full amount you need to replace or repair the lost or damaged asset.

Inflating or falsifying a claim

There are people who think they can get away with making exaggerated claims, filing a claim for items never possessed, or putting misleading descriptions of lost or damaged items. This is fraud. Remember that the insurance company sends loss adjustors or professionals to investigate any claim and any attempt at fraudulent claims is likely to be detected. The insurer then is legally entitled to reject the entire claim. Fraud may even result in criminal prosecution or rejection of future cover.

Failing to disclose material facts

When you submit a proposal for insurance cover, the insurance company trusts that you have provided correct information. On this basis, it calculates the corresponding premium. You also sign a warranty certifying that the facts you have provided are true and correct. If it should turn out that relevant information has not been disclosed or is not accurate, there is legal basis to reject the claim.

Withholding information about previous claims

It is the policyholder’s obligation to inform the insurer about all previous claims. This helps in evaluating the risk associated with providing insurance cover. Some people do not do this in an attempt to make their risk profile look more favourable. This is a common mistake. It is easy for an insurance company to verify your claims history and failure to make full disclosure will entitle the insurer to nullify the policy. When the policyholder submits a claim for losses suffered, there will be nothing forthcoming from the insurer.

Failing to take reasonable care

Having an insurance policy is not a licence to become careless about your use of the asset insured. If you examine your policy, you will find terms in it that require you to take due and reasonable care; this is a standard stipulation in all insurance contracts. You are supposed to take reasonable precautions to avoid incurring loss or damage to the asset. For instance, you shouldn’t leave your car keys in the vehicle, or leave mobile phones or purchases lying on the car seats. The concept includes having your vehicle serviced regularly to ensure that all critical systems are functioning properly to prevent mishaps. Failure to exercise due care could compromise your claim.

You can certainly think of other possibilities that would give an insurer cause to reject claims. This is why you should thoroughly read and understand the terms and conditions in your policy. These serve as your guide to avoid insurance pitfalls.