Compounding the Indemnity Limit over several renewal periods

  • The Period of Insurance is typically one year. At the end of the Period of Insurance the indemnity limits of the policy are ‘reset’.
    • In other words, at the start of each Period of Insurance the Insured starts with a clean slate and the full limit of indemnity is available to pay the claims arising during this new period of insurance.
    • If the indemnity limit is R1m then over a period of three years the policy could have paid three R1m claims – one each year. (For the sake of simplicity we are ignoring any reinstatement of indemnity limit extension.)
  • Based on this, some might ask: “If the policy runs for three years and the indemnity limit was R1m during that time, would the Insurers pay all of a R3m claim submitted during the third year if that was the first claim?”
    • The answer is no, because the indemnity limits are not accumulated from one Period of Insurance to the next.
Commercial Crime