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Hidden Dangers of Underinsurance: What You Need To Know

Jun 27, 2024 | General, Lifestyle | 0 comments

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Although this is an area that Veritas does not give advice on, the world of short-term insurance is extremely complex and overwhelming. Reading a bunch of words and acronyms that you do not understand can be scary, and often moves one to not take the necessary steps and actions to ensure that you are up to date and “compliant”, in order to have a successful claim.

The world we live in today is dominated by technology and AI. This era has made it that much easier for us to “do it ourselves” online and not involve a professional, but ultimately, you are likely to fall short when you really need insurance to come to the party.

We often hear of the term “underinsured”. This is the most common consequence where we see clients discussing how they did not get paid out the full amount of their claim, or what they are insured for. Unfortunately, one of our own staff members fell victim to the underinsured clause and the application of “average” was applied.

Here is how it works:
The contents of your house are insured for R200,000, but upon claim, the assessor submits their report and notes that the value of your contents and assets are valued at R400,000. You are now 50% under-insured. The insurer will only pay out 50% of the claim amount.

You have a fire in your home and suffer a loss of R50,000. The insurer will only pay 50% and you will have to bear the loss of the remaining 50%.
Their calculation is as follows:
Insurers’ Liability = R50,000(claim value) x R200,000(sum Insured)
R400,000(True value at risk)
= R25,000 (This is what the insurer will pay!)

In most cases, your sum insured will be much higher than the example, but you can see how this can be devastating if one does not ensure that they have the true risk value insured. Unfortunately, the onus is on you, the insured, to make sure that the insured values are always adequate and true.

Here is a list of things you can do, to have peace of mind that your insured values are accurate:

  • Insure for current replacement value, the new price including VAT.
  • Complete an inventory list and update it annually by adding in any new purchases, adjusting values for increases, and adding items which have been upgraded.
  • Get a professional valuations company to complete and do the inventory for you.
  • Update valuation annually on high value items such as jewellery, watches, bicycles, and electronics.
  • Keep all valuation certificates and receipts of purchase and send to your insurer with your inventory list.
  • Partner with a professional and they will assist you in ensuring your contents are insured correctly and accurately.

In conclusion, navigating the complexities of insurance can be daunting, especially with the risk of being underinsured. While technology makes it easy to manage your insurance yourself, it’s important to get professional help to avoid problems during claims. Being underinsured means not getting full payouts, which can be devastating in emergencies.

We encourage you to make sure your insurance covers the true value of your assets – update your policy regularly, keep receipts, and work with experts to ensure you are adequately protected.



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