- Deductible
Deductible works in two ways, to wit:
a. It is a bar to a claim, if the amount of loss is below deductible.
b. It is a deduction to a claim, if the amount of loss is above deductible. Simply put, the liability of the insurer becomes net of deductible.
To illustrate, Bentot owns a Ferrari 488 worth Php30,000,000 which is insured with Matibay Insurance Co. Based on tariff, the deductible for a Private Car is 0.5% of the car's Fair Market Value or Php2,000, whichever is higher. The deductible is therefore Php150,000.
In case Bentot got involved in a collision accident, and the damage to the Ferrari 488 amounted to Php149,000, Matibay Insurance Co. has zero liability because the loss is below Php150,000. In case the loss is Php151,000, the liability of Matibay Insurance Co. is only Php1,000.
- Depreciation
It is the decrease in value of a property over time. In Motor Car Insurance, this refers to the amount equivalent to a certain percentage (%) (depending on the age of the vehicle) to be deducted from the proceeds of a claim under Section III of the Motor Car Policy. However, depreciation is not applicable in case of total loss. There is a Schedule of Depreciation in the Motor Car Policy Forms showing the rates of depreciation.
- Average clause
A clause in a policy requiring that, where assets are insured for less than their full value, the insured is required to bear a proportion of any loss. The proportion is the amount by which the assets are under insured expressed as a percentage of its indemnity value, at the time of the loss.
To illustrate, if a property worth Php2,000,000 is insured for Php1,500,000, the property is 25% under-insured. In case the damage to the property is Php1,000,000, the insured shall shoulder Php250,000 as penalty for under-insuring the property.
Example
Kardo insured his property against fire for Php 3,000,000.00 with Mabilis Insurance Co. The property was totally burned and the value of the house was determined to be Php 2,800,000.00 only. How much will be the indemnification of Kardo? It is Php 2,800,000.00 or Php 3,000,000.00?
Mabilis Insurance Co is liable to pay Kardo for Php 2,800,000.00 only since it is the actual loss he suffered from the fire incident. The total sum insured is only the maximum limit of liability to assumed by the insurer. It is not a statement of the amount to be paid in case of a loss. To pay Php3,000,000 will be in violation of the principle of indemnity. Under the said principle, the indemnification shall be limited to the actual loss suffered by the insured - no more, no less.
REFERENCE
www.tira.go.tz
Credit: The work prepared by scholastic saidy contributor of legusc and a student at Moshi cooperative university (Mocu)
