It’s hard to know what all your stuff is worth. Sure, you may know how much you paid last year for that snazzy suit you saved up for, or how much you shelled out for your new flat-screen TV. But how about your fridge? Or your oven? Your collection of vintage LPs? You can take a rough stab in the dark at calculating a total value for these, but when push comes to shove that may not be good enough. Here’s why.
When you take out home contents insurance you’re asked to list the total amount your possessions are worth. Say you do some quick calculations in your head and list R200 000 as your grand total. But then your house is involved in a fire and after we properly assess the total value of your goods, we decide that you should actually have been insured for R250 000.
You then lay a claim for R50 000 to replace things lost or damaged in the fire but unfortunately, because you underinsured your possessions and have been paying lower premiums than you should have, we’d only be able to pay out a smaller percentage of your claim. This is how the calculation is worked out:
(Sum Insured / Actual replacement cost) x Amount of loss or claim = Settlement
Sum insured = R200 000
Actual replacement cost = R250 000
Amount of loss = R50 000
Settlement would then be = R40 000
This would mean that you’d only get R40 000 to replace the goods that you lost which are actually worth R50 000 – leaving you R10 000 out of pocket.
To prevent this, we recommend that when taking out your home contents insurance policy, you perform the following steps:
1. Do a thorough valuation of your goods
Look at everything: furniture, kitchen utensils, laptops and appliances. If you need to, do some research into the current prices of these items.
2. List the things you wouldn’t normally think about
For example, your fridge may be too heavy for someone to steal, but that doesn’t mean it can’t be damaged by a flood. Remember that your sum insured should also reflect the replacement value for things such as your garage and other outbuildings.
3. Consider using a property surveyor
If you have quite a few valuable possessions and are unsure how much they’re worth, using a property surveyor can be a good idea. A property surveyor is also especially useful if you’re a collector and the proud owner of something out of the ordinary like a stamp, coin or vinyl collection. They’re experts and will do a proper job of assessing your valuables so that you’re adequately covered.
You should also perform these steps at least once a year to check that nothing has changed and that all your possessions are still covered, at their correct values. Also, bear in mind that insurers usually inflate the sum insured of contents and buildings when they renew your policy. It’s worth checking that this increased value is enough if you take into account any new items you bought, as well as the effect of inflation.
Hopefully, you now understand why underinsuring can easily happen but is best avoided at all times. Doing things properly will mean that when the time comes and you really need your insurer to step in and cover your costs, you won’t have to reach too deeply into your own pockets.
Get more information on home contents insurance through Hollard.
The Hollard Insurance Company. Ltd (Reg No 1952/003004/06) is an authorised Financial Services Provider.
