Paying annual car insurance premiums? If you write-off your car before the year is out, you're not entitled to a refund, says the Ombudsman for Short-Term Insurance.
According to a recent ruling by the ombudsman, the benefits of an annual premium as well as the residual cover of car insurance means insureds get their money's worth even if the car in question is destroyed.
A recent case brought before the ombudsman saw an insured claim a 50% refund of his annual premium after his vehicle was written-off only six months into the insurance term. The ombudsman ruled in favour of the insurer who stated the policy came with residual cover, so the insured was still receiving cover despite losing the vehicle.
“Cover was purchased for a certain defined period,” says Hendrik Viljoen, Deputy Ombudsman. “Should a vehicle [of an insured paying monthly premiums] be written off on the 3rd of the month, then there is also no pro rata refund for the balance of the month. It is the same principle.”
Even if an insured loses his or her vehicle during an insurable event, there is no refund of premiums because the policy comes with added extra cover that does not require the vehicle in question to exist; for example, an insured can be covered while driving another vehicle.
Guy Eagle, spokesman for insurance comparison website Carandhomeinsurance.co.za, says: “It is an increased risk that policyholders take on themselves, which is why annual premiums are cheaper than monthly premiums over the same 12-month period.” The insured is also guaranteed cover for a full 12-month period, preventing the insured from rejecting a claim based on defaulted payments.
When are refunds available?
If there is no specific provision for a refund in the policy, then the policyholder is only entitled to a refund if the insurer terminates the contract before the insurance term is up, continues Viljoen.
“The policy contract would indicate what rights either party has to cancel. The normal principle is that should the insurer cancel [the policy] prematurely then they have to refund the premium. If the insured is also given the right to cancel, then a pro-rata refund would also be due.”
“In fact, most insurers,” says Eagle of Carandhomeinsurance.co.za, “include a surrender value clause in their policies whereby an insured may be refunded a sum of money in the event that the policy is terminated by the insured before the term is up and no claims were made on the policy.”
Certain insurers, such as MiWay, will refund the relevant portion of a premium that has been paid for beyond the date of the cancellation of the policy.
If the cover continues despite the loss of the vehicle, an insured can substitute a different vehicle on the policy, says Viljoen, with necessary adjustments on the premiums payable. “The insurer can, however, apply their normal underwriting criteria and may thus in certain circumstances refuse to ensure the new vehicle.
“Strictly from a technical point of view, I don't believe a refund is due. I would also think that, although not obliged to do so, most insurers would do a pro-rata refund if no new vehicle is purchased. The policy might, of course, also have a clause that could assist with the question,” says Viljoen.
When choosing an insurer then, determine whether and when a refund is due and if there is a surrender value (also known as a cash surrender value) clause in the policy.
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