When you sign for an insurance policy you are signing a legal contract. A life insurance policy, for example, is a contract between the policy holder and the insurance company.

The insurance company agrees to pay a certain sum of money when the policy holder dies and, in return, the policy holder agrees to pay the premiums at regular intervals. The same concept applies to your motor vehicle insurance, your house-holders insurance, and any other contract you may enter into with an insurance company.

Legal Consequences:

This is not a casual agreement and should not be entered into lightly. There is a very clear distinction between an informal promise such as an agreement to meet at a particular time and a “definite contractual undertaking enforceable at law”

By signing the contract you are binding yourself to the terms stated in it and, if you default, the consequences could be disastrous. Recently a policy holder challenged his insurance company’s decision not to pay him out on a claim because he delayed contesting their rejection beyond the 90 days allowed in the contract for him to do so.

The insured person claimed that the time clause violated his right to approach the court for redress and was therefore unconstitutional. The Constitutional Court ruled against him as there was no evidence that he did not “freely and voluntarily conclude the insurance contract” and that he was not aware of the time clause in the policy.

This is good news for insurance companies but bad news for any policy holder who finds himself bound by a contract he either misunderstood or failed to read before signing.

It is also important to know that, if you break the contract in any way, the insurer will not necessarily cancel the policy. However, this could mean that, while you carry on paying your premiums under the assumption that you are still covered by your insurance, when you try to collect on a claim the insurance company is legally entitled to use your breach of the contract as a reason to reject the claim.

Verbal Contracts:

One area in which you may have recourse is where dealings with an insurance agent ‘muddy the waters’. According to the law, the legal position is that when the agent is acting for the insurance company, the company is bound by what he does or says. What he says is as significant as what he does.

Legally, if an offer is made in plain language and clearly understood and accepted by the person to whom it is made then the contract is in force. The insured person cannot be bound by any restrictions or conditions which were not explained at the time.

Not that the insurance companies accept this lying down! In the case of Okavango Foam and Bedding the underwriters for New National Assurance Company had been phoned by the insured party and asked to increase their insurance to cover fire damage.

The underwriter agreed but failed to do so and the insurance company rejected a subsequent claim following a fire. The court ruled that the insurance company was bound by the agreement made by the underwriter who was acting on their behalf as the agreement constituted a contract, even although the underwriter didn’t carry it through.

This law is particularly relevant given the number of insurance policies purchased online. Legally a telephone conversation is treated in the same way as face to face communication.

However, a Dial Direct client found out how important it is to keep evidence of telephonic communication when the company initially rejected his claim on the grounds that they had no record of the conversation in which he changed his insurance to cover a new car, although they had details of the new car and had calculated the new premiums! The client is still waiting for the claim to be settled.

Conclusion:

Your safest bet is not to sign anything until you are absolutely certain that you understand all the implications of entering into a contract with an insurance company. Read, don’t scan, the policy document and if you have any doubts ask for an explanation. Remember that once you have signed on the dotted line you are legally bound to the terms of the contract.