Under-insurance can be financially crippling

According to market research by the largest short-term insurance company in South Africa, up to 40% of short-term insurance policyholders are under-insured by up to 45% and are putting themselves at serious financial risk.

Caroline da Silva, Head of Portfolio Management at Santam says, This means in terms of the insurance contract, a policyholder will only receive partial compensation after submitting an insurance claim.

Lets assume that the replacement value of a persons house contents is R200 000, but the sum insured is just R110 000 and during a burglary R20 000 worth of goods are stolen. Because he is underinsured by 45%, only 55% of the loss, that is R11 000, will be paid out.

No-one wants to come up with cash when they are experiencing a traumatic time. Under-insurance can put people under severe financial strain.

Da Silva says the problem is that most people fall into the trap of under-insurance, because they are unaware of the main pitfalls.

Due to the fact that crime is top of mind for many when insuring they often insure only for what they think may be stolen in the event of a burglary. Insurance however is comprehensive and covers you for far more than crime, so you really should insure for what it would cost you to replace everything you own should your house burn down in a fire.

Not insuring your assets at the correct replacement value is one of the main mistakes people make. The sofa that you bought five years ago for R1 500 might now cost R3 000 to replace. The contents of a house are insured at replacement value (vehicles are insured at market value). Therefore, you have to revise your policy at least annually to make sure that your cover remains adequate.

Also very important is for people to remember to insure the more arbitrary things too like curtain rods, curtains, bedding, loose carpets, books in other words all your household goods and fittings.

Policyholders should also immediately add new purchases and gifts to their policy.

When insuring the actual bricks and mortar of your home bear in mind the current day building costs since it is those costs that will be incurred when repairing damage to your home.

Da Silva concludes that you can either draw up an inventory yourself or employ the services of a professional broker who will be able to assist in a valuation of house contents.

Once you've determined the accurate replacement value of your household items, you can ask your broker or talk to Santam about amending your policy accordingly.