Insurance Pitfalls: What to Check in Your Policy

Pitfalls of voluntary motor insurance (CASCO)

10 terms you need to check

1. Insured risks: road accident, theft, fire, natural events, actions of third parties and other events.
2. Exclusions: driving by a person not named in the policy, breach of storage conditions, use of the car outside the agreed purpose.
3. Sum insured: whether it matches the real value of the car and whether it is reduced after a payment.
4. Deductible: conditional or unconditional, a percentage or a fixed amount, per claim or per contract.
5. Wear and tear: whether it is applied to parts and how it is calculated.
6. Repairs: cash payment, referral to a service station, choice of the station and use of original parts.
7. Notification deadline: when and by what means to report an event.
8. Documents: what will be required and who arranges the assessment.
9. Territory: where the cover applies and whether a separate endorsement is needed for a trip.
10. Beneficiary: who will receive the money if the car is bought on credit.

Deductible: an important clarification

The original article describes the deductible only as an amount that is always subtracted from the payment. That is true for an unconditional deductible. With a conditional deductible, a loss below the threshold is not compensated, while if the threshold is exceeded the payment may be made without any deduction, provided that is what the contract says.

A 5% deductible may be calculated from the sum insured, from the amount of the loss, or may be fixed. The example of a car worth 600,000 tenge with a deduction of 30,000 tenge applies only where the specific rules are worded accordingly.

Credit insurance

A bank may be the beneficiary, but the client must understand which event is covered, where the payment is sent and what happens in the event of total loss. Borrower liability insurance, CASCO and life insurance are different products. The service is provided by a licensed insurer of the relevant line and class of insurance.

Full original analysis

Below, the material from 2012 on the rules, deductible, aggregate sum, wear and tear, beneficiary and other terms is preserved without abridgement. Numerical examples and individual tips must be checked against the contract currently in force.

Unpleasant surprises are most often met by those who insured their car under a voluntary insurance policy and those who took out a loan to buy a car.

The most important document when concluding an insurance contract is not the insurance policy but the Insurance Rules. In most cases you are not shown this document, although in the "client's signature" box of the policy there is the phrase: "I have read the insurance terms and Rules". It turns out that you confirm that you have read the insurance rules, although in reality you have not.

The insurance rules are a multi-page document, about 20-40 pages, which describes all the terms of insurance in great detail. The insurance policy contains only brief extracts from the Insurance Rules. You could say that the insurance policy you receive is only the tip of a large iceberg.

Instead of a policy, an insurance contract may be issued; this is also a permissible form of relationship between the insurance company and you. Sometimes an insurance contract is issued instead of a policy. It can hold a larger amount of information, but the contract is also prepared on the basis of the Insurance Rules.

Conclusion No. 1. When concluding an insurance contract, it is important to read the Insurance Rules. If the insurance company for one reason or another refuses to show you the Insurance Rules, decline to conclude the contract. As a last resort, demand that the following phrase be included in the contract or policy: "In the event of a conflict between the terms of this contract (policy) and the Insurance Rules, the provisions of this contract (policy) apply".

What do the unfamiliar words mean?

In a policy you can often see various terms that are not always clear to car owners. Here is a list of such terms:

1. Deductible

A deductible is the unpaid part of the cost of repairing your car. For example, your car is worth 600,000 tenge and you decided to insure it for exactly that amount. The policy you were issued states a deductible of 5% of the sum insured. This means that the insurance company will not pay damage that does not exceed the amount of the deductible.

If the car is damaged by, say, 200,000 tenge, the insurance company will pay 170,000 tenge. The calculation is as follows:

determine the deductible: 600,000*5% = 30,000 tenge

calculate the payment: 200,000 - 30,000 = 170,000 tenge.

Why is a deductible needed?

A deductible is needed so that after concluding the insurance contract the car owner continues to look after the car just as carefully. When a car is insured against any damage (road accident, theft, hijacking, vandalism, robbery, etc.), there is a risk that the owner will no longer take proper measures to protect his property. Many start to think: "Why worry so much now? The insurance company will pay for everything anyway."

To prevent this, the contract includes a deductible clause. The general rule is: the insurance company is responsible for the major part of losses (85-95%), and the client himself is responsible for minor damage (5-15%, the deductible).

2. Proportional payment

This condition is usually found not in the policy itself but in the Insurance Rules. The proportional payment clause is used to protect the interests of the insurance company.

In which cases is proportional payment applied?

Suppose a car owner decided to save money on insurance. To do so, he understated the value of the car, stating that it is worth $15,000 rather than $20,000. This gives the insurance company the opportunity to apply the proportional payment clause. Since the car was not insured for its full value, the amount of the payment will also be adjusted.

In the example considered, the car was insured for 75% of its actual value, so the payment will be made at 75% of the damage.

3. Beneficiary

The beneficiary is the person who receives the money under the insurance policy. This word acquires particular importance when you take a car on credit. Usually, to obtain a loan you need to insure the car. The insurance company is, as a rule, chosen by the bank. You pay for the policy yourself and you are given all the documents, but in the event of an accident the insurance money will be received not by you but by the bank that issued the loan. You will have to find the money for repairing the car yourself.

"That can't be!?" you will say. Look at the "beneficiary" box in your policy: it contains not your name but the name of the bank. Why does the bank do this?

By granting you a loan, the bank takes on certain risks. A situation may arise in which the client can neither repay the money (he has lost his job and other sources of income) nor hand the car over to the bank (the car was wrecked in an accident and cannot be restored). In that case the insurance policy will help the bank. It is the insurance company that will protect the bank's interests. For the bank, this is an additional guarantee of repayment. True, the bank gets this additional guarantee at your expense, because you are the one who pays for the insurance, yet the bank (not you) receives the money under the insurance policy.

What else is important to pay attention to when buying an insurance policy?

1. payment deadlines

In compulsory insurance, payment deadlines are regulated by law. If you insure your car voluntarily, each insurance company sets payment deadlines on its own. The total time for payment includes:

the time for deciding on the payment itself. Usually from 5 to 20 days. During this time the insurance company "thinks" and decides whether to make the payment or to refuse it if there are valid grounds for doing so.

the time for the payment itself. It also ranges from 5 to 20 days. In this period the money is actually handed out or transferred to the client's account.

2. the list of documents for the insurance payment

In voluntary insurance contracts, after the list of documents it is often stated that "other necessary documents" are also required for payment. This wording is very vague and therefore convenient for the insurance company. If necessary, it allows the insurer to "invent" ever new "necessary" documents and thereby drag out the payment deadlines.

It is desirable that the list of documents in the insurance contract be exhaustive, with no phrase about having to provide additional documents. The ideal option is a contract that contains a special condition that the insurance company has no right to demand other documents not provided for in the list.

3. the figures in the "actual value" and "sum insured" boxes

The "actual value" box states the market price of your car, while the figure in the "sum insured" box shows the amount for which your car is insured. Let us look at this using examples.

Example 1.

"Actual value" - 2,000,000 tenge. "Sum insured" - 2,000,000 tenge.

This means that the car is insured for its full value. There will be no "surprises" at the time of payment.

Example 2.

"Actual value" - 2,000,000 tenge. "Sum insured" - 1,200,000 tenge.

This means that the proportional payment clause may be applied. Such situations arise very often with so-called "bank" insurance. When you take out a loan from a bank, banks try by all means to reduce the cost of obtaining the loan. So the car is insured not for its full value (2,000,000 tenge) but only for the amount of the loan issued (1,200,000 tenge). On the one hand, this is financially beneficial for the client: you pay less for insurance. On the other hand, when an accident occurs the proportional payment clause is applied, that is, not all of the damage is paid, only some part of it.

Example 3.

"Actual value" - 2,000,000 tenge. "Sum insured" - 300,000 tenge.

This is usually how so-called "two-sided" insurance policies look. As a rule, the proportional payment clause does not apply here, but to be sure of this you need to study the policy and the insurance contract carefully.

4. the wording in the section "Refusal of insurance payment" or in the section "Exclusions from insured events"

Very often, when you insure your car against any damage, you are told that payment is made in any situation, regardless of whether you are the guilty or the injured party. In practice, however, these promises may turn out not to be backed by actual documents.

You need to find in the insurance contract or in the Insurance Rules the section that describes the cases in which an insurance payment is refused.

If it contains the wording given below, this means that if you are at fault in a road accident the insurance company may refuse to pay, even though you were assured of the opposite verbally.

"The insurer has the right to refuse an insurance payment in the event of actions by the policyholder that are recognised in the manner established by law as intentional crimes or administrative offences directly causally connected with the insured event"

It is advisable to replace such wording, especially if you were given verbal promises of payment in any road accident, regardless of your fault. In this phrase, "administrative offences" should be changed to "intentional administrative offences".

Almost any road accident falls under the concept of "administrative offences", so if it wishes, the insurance company can easily refuse payment if you turn out to be the party at fault. Only a small number of road accidents can be classified as "intentional administrative offences", so cases of refusal to pay will be kept to a minimum.

Conclusion No. 2. To avoid disappointment when receiving a payment, you must:

read (not skim) the insurance policy, the insurance contract and the Insurance Rules carefully; pay particular attention to the clauses:

- "insured event" (in exactly which situations payment will be made),

- "exclusions from the insured event" (that is, when payment is

not made),

- "procedure for calculating the insurance payment".

always ask what unfamiliar words mean, for example "deductible" or "proportional payment".

It is also advisable to have the contract reviewed by professionals before concluding it.

MOST FREQUENTLY ASKED.

1. How does the insurance company find out how much my car is worth? After all, nobody asks me for documents confirming its value before the contract is concluded.

Indeed, when issuing a policy the insurance company relies on your personal statement. Of course, if you wish you can name any amount. At the time of concluding the contract nobody will specifically check it. Questions about the real value of the car will arise only at the time of the insurance payment. If doubts arise about the accuracy of the information you provided, the insurance company will turn to an independent expert with a request to prepare a report on the actual value of the car at the time the insurance contract was concluded.

If the value of the car turns out to be understated, the proportional payment clause will be applied. If the value of the car turns out to be overstated, the contract will be declared invalid to the extent of the overstatement. Given these circumstances, it is advisable to state the value of the car as accurately as possible when concluding the insurance contract.

2. A friend of mine was in this situation: he was in a road accident, the at-fault driver had ordinary compulsory insurance, and my friend had expensive voluntary insurance. Because the at-fault driver's insurer calculated too little, my friend also received a payment from his own insurance company. But then his own insurance company sued my friend and demanded the money back. Is that fair?

The general rule for receiving payments is this: you may receive money from several companies at once, but the total amount of payments must not exceed the real damage. You cannot be paid twice for the same damage. Let us explain with examples.

Example 1.

The car was damaged to the extent of 1,000,000 tenge, as confirmed by an independent expert's report. The owner received a payment of 700,800 tenge from the at-fault driver's insurance company (600 MCI, calculated at 1 MCI = 1,168 tenge) and a payment of 900,000 tenge from his own insurance company (after deducting the deductible).

The total payments amounted to 1,600,800 tenge, which is almost twice the real damage.

Example 2.

An independent expert assessed the damage caused to the car in a road accident at 550,000 tenge. The at-fault driver's insurance company carried out its own assessment and agreed to pay 400,000 tenge. The car owner did not want to go to court against the at-fault driver's insurer and decided to receive the missing amount of 150,000 tenge under his own "two-sided" insurance. Thus, the total payments did not exceed the real losses. There are no violations in the actions of the owner of the damaged vehicle.

3. How will my insurance company find out that I received money somewhere else?

One of the conditions for receiving money under voluntary insurance is the right to assign the recourse claim. This means that before receiving the payment you must sign a document stating that you have transferred to your insurance company all rights to recover the amount received. Your insurance company can now lawfully recover this amount from the party at fault for the accident or from his insurance company. By approaching the at-fault party and his insurer, your insurance company gets full access to all information about the payments made to you. If it turns out that you received more than you were entitled to (as in Example 1 above), the insurance company will demand that you return this money.

All insurance companies use the right of recourse. Recourse claims are usually filed within six months after the payment (the maximum possible period for filing is three years). Since the whole truth about the payments you received will come out anyway, it is better not to mislead your company, so as not to take part in lengthy court proceedings later.

How to check your policy after it is issued

• check your full name/company name, IIN/BIN and contact details;
• check the VIN, registration number, make, model and year of the car;
• make sure the start date and time of cover are correct;
• check the sum insured, premium and deductible;
• check the list of authorised drivers;
• keep the notification from the unified insurance database (ESBD) and the receipt;
• write down the official claims settlement number.

Red flags

• the rules are promised to be sent only after payment;
• the terms are stated verbally and are absent from the documents;
• you are asked to transfer the payment to a personal card;
• the seller asks you to provide false information;
• the sum insured is noticeably lower than the value, without explanation;
• exclusions are written vaguely or contradict the advertising.

Conclusion

Insurance pitfalls become visible when the rules are read carefully from start to finish. Compare not the price but the cover, exclusions, deductible, wear and tear and payment procedure. All important promises must be set out in the contract or in the attached rules.

This material is for information only. Decisions should be made on the basis of the current contract, rules and the legislation of the Republic of Kazakhstan.