Avoid falling into the under-insurance trap

About 1 in 3 South Africans with home contents insurance are under-insured. This has serious financial consequences for consumers.

According to Graham Craggs, spokesperson for Budget Insurance: “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.”

He 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 could possibly only pay a part of your claim,” says Craggs.

The 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.

With this in mind, 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 cellphone or TV for example, then you would probably not be insured adequately.

Craggs 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 this could be detrimental if you ever need to make a claim,” concludes Craggs.