Your home is likely to be your most substantial financial investment. That’s why insuring it correctly is so important.
Your home is likely to be your most substantial financial investment. It’s also the absolute cornerstone of your lifestyle and family – it’s your security, your happy place, your stability, your castle. That’s why insuring it correctly is so important.
“If you lost your entire home with everything in it in a fire, or all your possessions were carried off by the local crime syndicate, and you didn’t have insurance to protect you from the financial repercussions, you’d be up the creek without a paddle. You would also still be liable for any outstanding debt on the bond or contents, despite the fact that you no longer have them. Paying off the existing debt and trying to fund your replacement digs at the same time would be pretty impossible,” explains Deanne van Doesburgh from Hollard.
That’s where insurance comes in – one of the finest financial planning tools ever invented. By paying an insurance premium every month, reviewing and updating your policy every year, and sticking to some basic risk prevention strategies on your part, you get to live and love your life and seize opportunities, safe in the knowledge that if something does go wrong, they’ll soon be set right thanks to your insurance. All of this comes with the proviso that you’re correctly insured right from the start and that you adhere to the terms and conditions of your insurance policy.
One of the most important aspects of home insurance is to avoid being underinsured and having, what insurers call, the ‘condition of average’ applied come claims time.
Hollard offers some insights on what underinsurance is, and how to avoid it…
What is Underinsurance?
In a nutshell, it means that your insured values are less than what it would cost to replace the lost or damaged items. So while your insurance will help towards recovering some of your losses, there is going to be a shortfall. The replacement value refers to what it would cost you at the time of a claim to replace lost or damaged items with new ones.
What is the condition of Average?
In assessing your claim, the insurer will work out if you were underinsured prior to the claim, and to what extent. If you were underinsured, then only a part of your claim will be paid out after the principle of ‘average’ has been applied. The claim amount that will be paid will be calculated as follows:
(Sum insured / Replacement value) x Amount of total loss
Here’s a simple example to illustrate:
The contents of a home are insured for R300 000. The actual replacement value of all the contents is R600 000. If the house is burgled and contents worth R60 000 are stolen, the claim amount would be calculated as follows:
(R300 000 / R600 000) x R60 000 = Claim amount payable of R30 000 This means there will be a shortfall of R30 000 because the home contents were underinsured by 50%.
How to avoid underinsurance:
“Armed with this new-found insight, I hope that every homeowner is inspired to do a proper inventory list of their home contents and to consider the costs associated with replacing their building and everything in it. You have worked really hard to build up the lifestyle and assets that you have, so take the time to ensure that your insurance will always keep you as the King of your castle,” concludes Deanne.
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