Mistakes that could leave consumers underinsured

Christelle Fourie, Chief Executive Officer of MUA Insurance Acceptances

This is according to Christelle Fourie, Chief Executive Officer of MUA Insurance Acceptances, who says it is imperative that consumers conduct regular valuations on their prized possessions in an effort to decrease the possibility of underinsurance taking place.

She explains that different items' replacement values fluctuate continuously depending on the type of product being insured. "When it comes to insuring possessions, any item that has been imported or bought overseas is very much dependent on the value of the Rand. Should the insured item get lost or damaged, the Rand's value directly impacts the replacement value for these types of goods meaning that the cost to replace the item is often substantially higher. Conversely, depreciating values could also mean that items could equally be over-insured, depending on the value of the foreign currency."

Consider price inflation

Fourie points out that many consumers don't take price inflation into consideration. "For example, a piece of electronic equipment or an item of jewellery that cost R1 000 ten years ago could easily cost more than double that price in today's market."

She says that it is also advisable for consumers to always keep their slips as proof of payment for any purchase made, either locally or internationally. "The value of items is constantly changing and consumers should ensure that they update their insurance policies on a continuous base to reflect the restructured value of their assets. This will ease the process when it comes to claim stage as the consumer won't be at risk of a financial loss."

On the home front, Fourie says that homeowners are at an even bigger risk of being underinsured, as the value of their home increases every year. "The updated value of a home should therefore be reflected in the homeowner's insurance policy at least on an annual basis."

Fourie says that one of the most common mistakes people make is to insure their home for the market value i.e. what they paid to purchase the property. "Home insurance should actually be calculated on what it would cost to rebuild the property. For example, a Victorian house in Parktown with its original features intact could well cost more to rebuild than a swanky new development in Sandton."

She further explains that in the unfortunate event of a fire or a flood where a house with the value of R1 million was only insured for R500 000 gets badly damaged, the homeowner will only receive half of their insurance claim, as the policyholder was underinsured by 50%.

Fourie adds that it is also important for consumers who have conducted home renovations during the year to update their home insurance policy to reflect the additions following any alterations. "Even the simplest of home renovations or security improvements could change the insured value, or even alter the premium paid, so it is important that these are communicated to their broker and insurance provider."

Fourie says that it is standard practice at MUA to provide valuation services as part of its insurance product offering. "Once the valuations have been conducted and the values of the insured contents or home are accepted, then the average clause in the insurance policy will fall away. The average clause in a policy states that where assets are insured for less than their full value, the insured is required to bear a proportion of any loss."

"Policyholders should be aware that the value of items is constantly changing and their insurance policies should be updated on a continuous bases to reflect the restructured value of their assets. To ensure that they are not at an increased risk of underinsurance, consumers need to contact their brokers regularly to update their insurance policies," concludes Fourie.