Insurance is a contract in terms of which the insurer undertakes, in return for the payment of a price or a premium by the insured, to render the insured a sum of money, or the equivalent to a sum of money, on the happening of a specified and uncertain event in which the insured has some interest. The insurance contract is also referred to as an “insurance policy”. The rationale behind insurance is to protect oneself against the occurrence of undesirable risk.
Types of insurance
In South African law we have two types of insurance, namely indemnity insurance and non-indemnity insurance.
Indemnity insurance is taken out to indemnify oneself against a loss. In other words, insurance is taken out so that one is reimbursed if one suffers a loss. Non-indemnity insurance, on the other hand, is taken out to indemnify oneself against the occurrence of a future uncertain event such as death or disability.
There are two statutes dealing with insurance in South Africa, namely the Short-term Insurance Act 53 of 1998 (hereinafter “SITA”) and the Long-term Insurance Act 52 of 1998 (hereinafter “LITA”).
The abovementioned Acts control the insurance industry and aspects of insurance policies with the view of protecting the interests of those insured. The Acts also provide for the registration and control of insurance companies in South Africa.
The SITA focuses on indemnity insurance. For example, motor vehicle policies and health policies. Whereas, the LITA focuses on non-indemnity insurance. For example, life policies, disability policies and health policies.
The Minister has also enacted Policyholder Protection Rules for the respective Acts.
How is an insurance policy created?
There are two parties to an insurance policy: the insured and the insurer. There may also be instances where a third party is nominated as the beneficiary of a policy.
The Acts refer to the person entitled to be provided with the benefits of a policy as the “policyholder”.
At common law, no formalities are required for the conclusion of an insurance policy. In practice, however, insurance policies are generally reduced to writing.
Essential elements of an insurance policy
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).