Is your AOV a non-life or sum insurance policy? And why that is important to know

As a self-employed entrepreneur or professional, disability insurance (AOV) is an important safety net. But did you know that AOVs come in two forms? And that the type of insurance can have a big impact on your disability benefits?

In this article, I explain the difference between non-life insurance and sum insurance and why it is essential to know which form your AOV comes in.

What's the difference?

Sum insurance
A sum insurance pays out a pre-agreed amount as soon as the insured risk (disability) occurs. Here, it does not matter whether you actually lose income or not. The sum insured is fixed. The indemnity principle, the principle that you should not lose out financially, does not apply here.

Example: You have taken out a sum insurance policy that pays out €2,500 a month if you are 80% incapacitated. Even if you only miss €1,500 in income, you will still receive the full €2,500.

Casualty insurance
A non-life insurance policy only pays out what you actually suffer in damages (read: loss of income). If you suffer less damage than the insured amount, less will also be paid out. You may not improve financially. However, this is bound by the indemnity principle.

Example: You are 80% incapacitated, but you lose ‘only’ €1,800 in income. Then that is the maximum amount you will receive, even if you are insured for a higher benefit.

In addition, in non-life insurance, the insurer has the right to recover damages from a liable third party (the so-called right of recourse). With sum insurance, this is not possible.

Why is this important?
Many policyholders do not know what form their AOV takes. This is worrying, because it determines how and how much you will receive in case of disability. Fortunately, standard formulations have been developed by the Association of Insurers. You can often find these in the policy conditions:

Non-life insurance
‘The purpose of this insurance is to provide a benefit to the beneficiary for loss of income due to disability. ’

Sum insurance
‘The purpose of this insurance is to provide a periodic payment in case of incapacity of the insured. ’

Conclusion
Check your AOV: is it sums or non-life insurance? The difference seems small, but it can have big financial implications the moment you need it.