Definition of Liability in Short term Insurance

What is the difference between short term and long term insurance? Long term insurance refers to long term policies such as life insurance or annuities. Short term insurance provides you with cover against loss, damage and liabilities. The insurer accepts liability for the insured risks for which you pay a monthly premium, in some cases you could pay a yearly premium.

There are various sections of short term insurance such as:

  1. house owners insurance (cover your house, the actual building)
  2. household insurance (the contents of your house, i.e. furniture)
  3. all risks insurance
  4. car insurance
  5. personal liability
  6. personal accident

Long term insurance can be seen as a type of investment if you take out an investment policy for example; short term insurance is not an investment, you do not get your money back. Insurance is built around the following principal: Risks are shared with others through a pool of premiums paid by all members. From the pool of premium income the insurance company pays out against claims.

In insurance there are a number of terms we need to understand otherwise it remains jargon. One of the terms often referred to in insurance is liability, so let’s analyse that in more detail.

The word liable means “responsible according to law.” Liability is therefore a legal responsibility. Another definition: It is a duty you have to pay costs and compensation to another party for losses or damage to his property or injuries sustained through a fault or negligence on your side.

Short-term insurance provides cover against the loss of your personal assets (your house, car, furniture) against insured risks (theft, damage, fire.) But, there is more to it—insurance provide cover against possible legal liability.

If you are involved in a car accident and you are found to be the guilty party, the third party (the person in the other car) has a legal right to sue you for the full cost of the damages: you are liable for the damage caused to his car, all his medical costs, lost income, rehabilitative care, and even pain and suffering. If you have liability cover included in your insurance, your insurer will accept the liability on your behalf and pay for your own damage as well as the damage to the third party’s car. Liability insurance cover pays for the claims from the third party, not your own losses (that is covered by your normal insurance premium.)

This is a very basic explanation and technically it can become very involved. A third party may have to sue the policyholder through the courts to establish legal liability.

There are different liability cover policies available on the market for specialized functions such as:

  1. Employers Liability
  2. Products Liability
  3. Defective Workmanship
  4. Contractors Liability

For our purpose we are just looking at the liability cover included in your short term car and/or householders policy. Have a look at your existing policies and see what your cover is for personal liability. The additional premium you pay for personal liability is totally negligible compared to the cover you receive. You may pay as little as R3 a month for R3 000 000 worth of cover.

What if you do not have any short term insurance cover? Your dog bites the neighbour’s child. He sues you for all the medical costs, including trauma treatment. What if it is something much more serious? You can potentially be looking at claims of hundreds of thousands of rands, for which you will be personally liable. If you have liability cover the insurance company will take care of that for you.

As far as legal liability cover included in your household policy is concerned: Someone trips over a loose tile inside your house, falls and suffer severe injuries. You may be accused of negligence and sued for liability.

As with any insurance policy, read the details—what does the liability portion of your contract cover; even more important—what is excluded from the cover. For example, your car insurance, does your cover include passengers travelling with you?

As soon as you become aware of any possible claim against you, you need to advise your insurer.

Can you afford to be without legal liability cover?