BUSINESS NEWS - The concept of being underinsured is something we hear about often – and hope won’t ever affect us. Avoid it altogether by making sure you’re adequately covered.
First things first
Being adequately insured, which simply means having the accurate replacement values for your assets and contents considered in your short-term insurance cover, starts with you. It is your responsibility to provide your adviser and insurer with correct information – including the true cost of the items you’re insuring, should they need to be fixed or replaced. This is the first step to avoid being underinsured.
Finding value
Getting your own valuation done by a professional will give you extra peace of mind. It’s recommended that you seek a specialist, such as an evaluator from your insurer, the manufacturers of expensive items you own, or companies who focus on valuing goods within certain sectors.
For some items such as jewellery or art, you may require a valuation certificate, so check if any of your goods require one. While private valuations can incur a cost, this may be well worthwhile when compared to finding out you were underinsured when it’s already too late.
For businesses that deal with large stock volumes (such as supermarkets or hypermarkets), the insurer may request that the stock value be determined and declared quarterly or bi-annually. This will, however, depend on your individual circumstances. Your adviser will be able to let you know which conditions apply to your policy based on your insurable needs.
Don’t be average
When it comes to calculating claims, the principle of average is applied to under-insured assets or property. For example, consider a building insured for R500 000 when its actual replacement value is R1 million. In this case, only half of the property is insured. In turn, only half of claims will be honoured.
So, if there is damage to the value of R100 000, only R50 000 will be paid out. It is therefore essential that the value of an asset be accurately recorded in your policy schedule at the time of loss.
While the principle of average does not apply across all sections of a short-term insurance policy, it is included under the fire, building, office contents and glass sections. (It would not, for example, apply to the All Risk, liability or motor sections.) The principle exists to protect both insurers and clients against prejudice if underinsurance comes to light, ensuring fair treatment for all.
If someone is underinsured, they are not contributing enough to the pool of premiums for the risk(s) they are insuring. The principle of average prevents them from sharing in all the advantages of belonging to the pool and means that they will have to carry a portion of their own losses.
Don’t overdo it though…
While it’s difficult to over-insure most of your contents at home, you may not find this to be the case for your All Risk cover, which extends to your cellphone and other valuable items you carry with you (like watches and laptops). You can be paying too much for these items if you place an overly high value on them.
It makes more sense to be realistic about their replacement costs and keep your budget in check. Also keep in mind that replacing an item such as a cellphone yourself would be much cheaper than replacing a building, yet cover for your portable gadgets is often not as cost-effective as cover for a building.
Budget-proofed
The country’s National Budget this month is a reminder that expenses tend to go up. Use the opportunity to review your own budget and make sure all is in order. Whether you’re insuring your personal goods or your commercial interests, you need to keep the full picture in mind, from the true costs to how long it could take for your goods to be replaced. Chat to your adviser to be sure you’re on track.
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