UNDER-INSURANCE EXPLAINED

If your used underwear or toothbrush is stolen you do not have to worry that your insurer will replace it with secondhand underwear and a used toothbrush, because the basis of cover for house contents is “new for old” with all the insurers we deal with. This means that

[A] The insurer is obliged to replace items with
exactly the same [or, if not available on the market, nearest equivalent] brand new items,
[B] The client is obliged to insure items for the price of
exactly the same [or, if not available on the market, nearest equivalent] brand new items.

As you can see, the obligations are the same as far as values are concerned. So the question you must ask yourself is: “What will it cost my insurer to replace [1] my buildings or [2] everything in my house in the event of a total loss by fire?”

If you do the exercise to determine these amounts, at least annually, and insure for the totals, your insurer will be obliged to repair damages to your buildings, or replace everything in your house with brand new items, at the time of a loss.

EFFECT OF UNDER-INSURANCE
If you insure your house contents for R100000 but, at the time when you suffer a burglary loss, it turns out that the actual new replacement cost is R200000, then you have only taken up insurance for 50% of the real risk. If the cost to replace the stolen items is R15 000, the insurer will pay only 50% namely R7 500.

Remember, buildings and house contents are the ‘cheaper’ risks. Therefore, being under-insured results in insignificant savings and disproportionate losses in the event of even a small claim.