Insurance Terms


3rd Party

Any person (legal or natural) not party to the insurance contract who has an alleged or actual right of action for injury or damage against a person insured by the policy

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Also called pro-rata condition of average. Average is applied to household contents and buildings by most Insurers, and is applicable when the sum insured is not enough to reflect the full replacement / reinstatement value of the property at risk.  The settlement amount will be proportionately reduced by the Insurer to reflect the corresponding proportion of the loss based on the ratio of insured value to the correct value of the insured property. The following formula is used to calculate the Insurer’s proportion of the loss:
Sum insured   Amount lost  
_________________________ x _____________________ = Settlement Amount
Full replacement value at risk   1  
Example: Client Abel is insured for R150 000. His household content’s full replacement value is R350 000. His house is burgled and goods with a replacement value of R35 000 is stolen. Average is applied by the insurer using the above formula and Abel is paid out R15 000

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Insurable Interest

For an Insurer to provide indemnity against a loss, the policy holder must have an insurable interest at the time of loss. The following are essential elements to ascertain the existence of an insurable interest:

1. The insured person must stand to benefit from the continued safety or well- being of the subject matter or from the freedom of legal liability and would be prejudiced by its loss or damage or by the existence of a liability
2. The relationship between the insured and the subject matter must be one that is recognised in law, a legally enforcable right, which may include a contractual obligation

A financial institution whose business activity it is to provide compensation or indemnification against defined loss events. The financial institution must be registered as an Insurance Company according to the Companies Act and be licensed by the Financial Services Board 

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Loss Adjuster (Assessor)

A person appointed by the Insurer to investigate the circumstances and quantum (value) of the loss. They do not make decisions on behalf of Insurer but act on an instruction only.

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Over Insured

If the sum insured is more than the full replacement value / reinstatement value of the property at risk.  Average will not be applied and the only risk to the insured is the extra premium paid to Insurer.

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Personal Liability

Legal liability that can be incurred by a natural person toward a 3rd party

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South African Special Risk Insurance Association, generally known as unrest, riot, strike or public disorder insurance

Short Term Insurance

A contractual arrangement in terms of which exposure to risk of loss or damage, death or injury or liability is transferred by one party to the contract (insured) to another (Insurer) in exchange for a premium


Substitution of the one party for the other as the creditor. Insurer replaces the insured as the liable party to compensate a 3rd party or holder of entitlement against 3rd parties

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Under Insured

If the sum insured is not enough to reflect the full replacement / reinstatement value of the property at risk.  Average will be applied by Insurer.

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