Avoid Falling Into The Under-Insurance Trap
Many South Africans assume that if they have a home contents insurance policy in place, they will be covered if any of their possessions are lost, stolen or damaged. What they don’t realise is that if they don’t insure their possessions at their replacement value they could have to cough up – even if they have been diligently paying their insurance premiums every month.
This is called under-insurance and, according to Anthea Abrahams, director of Dial Direct Insurance, it is a major issue for short-term insurers.
“Under-insurance occurs when there is a shortfall between the amount of cover selected and the actual replacement value of what is being insured. Unfortunately there is a tendency amongst some people to under-insure their goods in order to save a bit of money on their monthly insurance premiums. Others are just not prudent when it comes to updating their policies and inventory lists. Either way, many only realise the consequences when they submit a claim and discover that their insurance will not cover the full costs of replacing whatever has been lost, stolen or damaged,” says Abrahams.
She explains that the replacement value of goods is what it would cost you, at the time of a claim, to replace all your belongings with similar brand news ones. If you submit a claim, your insurer will calculate the replacement value you should have insured yourself for. If you insured your belongings for less than that, your insurer will only pay a part of your claim.
Most insurers use the following calculation when determining if the client is in fact under- insured:
Claim: R10 000
Insured For: R50 000
Replacement Value: R100 000
Under-Insurance Calculation: R10 000 X R50 000
R100 000
Claim Payment: R5 000
Abrahams says that replacement values of goods change over time and if the policy is not reviewed and the higher replacement value is not taken into account, cover becomes inadequate.
“It is important to update your household inventory list on a regular basis to ensure that any new items are included and to remove items that that you no longer have. If you fail to list the values of your new DVD player or TV then you would probably not be insured adequately . Likewise, it doesn’t make sense to be paying to insure your old washing machine when you have just replaced it with a new one with a higher value,” says Abrahams.
Abrahams also stresses that when you are updating your inventory, you need to make a realistic estimate of the true replacement value of the goods on the list.
“Don’t under estimate the cost of replacing items to try and lower your monthly premiums because you could fall short if you ever need to make a claim. Similarly, avoid over estimating replacement values because this will result in you being over insured and you will be throwing money away unnecessarily every month,” concludes Abrahams.
Dial Direct Insurance offers short-term insurance direct to the consumer, with super-low premiums, super rewards and super service.