Are you wasting your money on contents insurance?
Do this right now:
- Pull out a copy of your car and home insurance schedule and page to the section which deals with household contents.
- Then look at the amount you’re insured for. Does that value look right?
Now here’s what’s interesting about being under-insured
Most policyholders under-insure their contents (householders) insurance because they think its a waste of money.
And you know what? They’re right about wasting their money, but for all the wrong reasons.
In this article I’m going to show you why, but first…
What happens if you claim under contents while under-insured?
It’s almost December and that means holiday time, right?. Three weeks fly by, and before you know it, you’re back home. But while you were away you had a few surprise guests who left without saying thank you. And oh, did I mention they took the TV as well?
You ring up the insurance company and lodge a claim for R150, 000 under your contents section.
The assessor comes out and decides to do an inventory of everything that’s left. Yes, he ends up counting the twenty pairs of shoes in the wife’s cupboard, and the five suits in yours. Then, after all the kindness you showed him by offering tea and biscuits, he submits a report saying you’re under-insured. Something along the lines of: “you should have been insured for R500, 000 – not R200, 000”.
“So what?”… I hear you splutter, “I’m only claiming R150, 000. What’s the big deal? I mean I could understand if I was claiming for R300, 000, but I’m insured for R200, 000.”
Unfortunately your insurance company sees things differently.
So here’s how their discussion goes:
- This policyholder knew that he was under-insured by R300, 000. So in other words, he was willing to take the risk on losing R300, 000 if his house burnt to the ground, but he was willing to bet that if someone broke in, they’d only steal a television or two?
- He was less than truthful with us all these years and never disclosed what we were getting ourselves into, and now he wants us to carry the can?
- The client should have been insured for R500, 000 (which is what he stood to lose), but instead insured for R200, 000 which was what he could afford.
- It’s only fair that he becomes our partner in taking the risk.
It’s called ‘average’ and YES, the insurer has every right to apply it (It’s right there in the fine print of your contract).
So let’s recalculate the claim for R150, 000, shall we?
- R200, 000 is the sum insured and that amounts to 40% of the R500, 000 (R500, 000 x 40% = R200, 000).
- So 40% of the amount claimed – R150, 000 – means we’re only paying R60, 000 of the claim (R150, 000 x 40% = R60, 000)
- Your share in the claim is R90, 000!
Not nice…especially when you find out that insuring for R500, 000 would only have cost an additional R50 a month.
And the good news if you’re under-insured.
None of the above has happened to you…yet!
How much money have you already wasted believing you were 100% covered?
Let’s imagine you’re insured for R200, 000. We’ve also discovered that if you ever submitted a claim for R200, 000 – and were 60% under-insured – the insurer would only pay R80, 000, right?
So let’s apply that same principle to your monthly premium of R200.
- R200 per month is what you’re paying. But we know that if you claimed they’d only pay 40% of your claim.
- R200 x 40% = R80 per month which is what the insurer is willing to pay when you claim.
- Basically you’re giving R120 a month to your insurance company.
- Now multiply that R120 by the number of years you’ve faithfully been paying premiums.
Can you see who’s the one wasting money?
Here’s the solution:
- Run a complete inventory of your household contents at replacement value.
- Ask your broker to quote on adjusting your insured values to the correct figure.
- Then decide whether the additional cost is worth it.
- Employ the services of a professional valuation company to come and do it all for you.
- The great thing about using a professional valuation company is that most of the insurance companies will accept their valuation figures at the time of claim.
- Once a year, for a small fee, the valuators will visit you and update your inventory.
If you’re interested in revisiting your motor and household insurance and would like to have comparative quotations done, why not complete the form below.
The InsuranceFundi Team