The Basics of Insurance Disclosure

Purchasing a new item or entering into a new business venture means that you have to insure against any risk.

What is insurance?

The most basic definition of insurance is that it is the transfer and distribution of risk. A contract is entered into between the insurer and the insured and this agreement should be clear about what it is that is insured and the risk involved. The amount payable should be made clear, along with the amount of the premium payable by the insured and the period of the insurance.

Some guidelines regarding insurance disclosure:

It’s important to remember that insurance contracts are concluded with the utmost of good faith, so the insurer requires accurate and extensive information about all facts when assessing the risk in question.

It’s vital that both parties disclose all material facts to each other.

South African law places a duty on an insured individual to disclose certain material facts to the insurer. This means that if you fail to comply, you may find yourself uninsured.

Facts are regarded as material where failure to disclose the fact would influence the insurer’s decision to accept the risk as well as the premium and the price at which it should do so. It’s important to disclose any previous claims history, cancellations or refusal of insurance. Full disclosure should be encouraged as not only are there legal implications, but there may also be significant complications when it comes to having to lodge or process a claim.

When the premium is determined, the insured must answer questions in the proposal form honestly.

Insurance in South Africa is regulated through the Insurance Act, which is divided into the Long Term Insurance Act 52 of 1998 as well as the Short Term Insurance Act 53 of 1998.

According to the Long Term insurance Act and section 53 (1)(b) of the Short-Term Insurance Act: “The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider  that the particular information constituting the representation or which was not disclosed, as the case may be, should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk.”

All insurance disclosure must be made before an insurance contract is entered into.

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