The real risk of short-term insurance: being under-insured
As much as being adequately insured is a dream when calamity comes calling, being under-insured is the nightmare that adds insult to injury. Being sufficiently informed should help you sleep in peace.
Simply put: severe underestimations of the value of the goods you want to insure, be it your business, your home, vehicle or any other valuable items such as works of art, antiques or jewelry, which is referred to as the ‘sum insured’, is what amounts to being under-insured.
When your goods are under-insured, any claims made will be subject to an average, so your pay-out will be proportionately reduced by the amount that the property is under-insured. If your amount of cover only covers a proportion of the cost of replacing or repairing goods, you will have to cover the remaining cost of the loss or damage yourself and this can come as an additional nasty shock that could cost you dearly.
Reasons for being under-insured
Apart from the obvious, deliberate one of desiring to minimize your monthly insurance costs, there are other, sometimes unintentional, reasons to guard against.
- Home owners can overlook items that are kept stored out of sight.
- Vehicle owners can neglect to insure for retail value and receive only market value as payout.
- Owners also need to remain aware of changes to replacement costs of goods that are subject to price changes.
- Countless property owners are unaware, or forgetful, of the need to upgrade the sum insured value of their property.
- Your policy as owner may take a 10% inflation increase into account, but let’s suppose this figure rises far above that. If it rises to 20%, it means your claim will only pay out half of what you expect to get.
- Many owners are perhaps in the dark about the ‘apply average’ clause in the insurance contract that allows the insurer to reduce their payout of a claim in proportion to the amount under-insured.
Remedies against being under-insured
Choosing the right short-term insurance provider is paramount, of course, as any upright, attentive and trustworthy insurer can prevent the listed problems from becoming yours. Regular communication with your consultant is essential. To guard against careless misrepresentation, keep the following in mind.
- Make sure there is no concept in your insurance contract about which you are confused.
- Make sure you understand the conditions of your contract, especially those relating to policy limits.
- Establish clearly whether it is up to you to review or upgrade your cover or whether your insurer will take over this responsibility for you on a regular basis. It is of the utmost importance that your contract keeps up with the higher replacement value of your possessions.
- Be conscientious about keeping a list of all new valuables you add to your household and about informing your insurer of changes in this inventory list.
- Equally, keep a record of items you no longer possess and which need to be removed from your contract.
- Make sure your possessions are insured at their replacement value rather than the market value.
- The estimate of the total value of your property must be accurate for adequate coverage, so ensure that your insurer is an expert qualified to provide this.
- Establish clarity about the excess clause in your contract.
In conclusion: it is essential to consult with a qualified financial planner from a company with a credible reputation for excellence in service. You need an insurer who pays attention to your unique needs, one who will ask the right questions to ensure relevant items or issues are not overlooked, who will establish that there are no ‘hidden’ clauses in your contract that could come back to bite you, and who will be diligent in checking that your contract is upgraded to meet both the individual changes in your lifestyle and the wider financial market changes in the broader community.
The BellRyck Financial Group boasts a proud history spanning three decades. We offer short-term insurance, as well as long-term financial investment products and advisory services through our specialist network of service providers.
Our commitment to fostering lasting relationships built on trust and personal service, has allowed us to create valuable partnerships with both individuals and businesses. Prescribing to the highest standards of ethics and integrity, we have developed the acumen and flexibility to successfully evolve with the changing financial needs of our clients.Find out more by visiting: www.bellryck.co.za