In a regular newsletter that I am subscribed to, a reader complains that the short term insurance company “cheated” her. They were robbed and abused by the robbers, who used her husband’s car to drive their loot away.
When the insurance company came on the scene, it was discovered that they were under insured. And the claim was paid accordingly.
Understanding average is fairly easy.
First, remember that the contents of your house is the content of your house. In other words, if you turn the house upside down and start shaking, everything that falls to the ground or hits the ceiling, that is content. Furniture, appliances, clothes, cd’s, everything. If you claim the contents is worth R400 000, that is what it would cost to replace everything, including your underwear.
What does it mean when you insure for R200 000, but in fact the real value is R400 000? It means that 50% of your home content is not insured. Or, we can also say, you become your own insurer for 50% of the content. The question is: which 50%?
In the case mentioned above, the lady was insured for R400 000 and the robbers got away with R200 000 worth of goods. The loss adjuster comes in, does a valuation of the remaining content and found that there is R400 000 worth of content left. Which implies: either the content was under insured by R200 000 or the robbers did not take anything (and it is a false claim). In a case like this, it would be very strange that the robbers took only insured stuff and nothing that went uninsured? And how do you proof it?
So the insurance company says: “You were your own insurer for 1/3 of the content of your house. It means you will have to contribute 1/3 of the loss” and accordingly paid 2/3 of the loss. Makes perfect sense. That is exactly why we always warn against under insurance.
If the house caught fire and everything was lost in the fire, the insurance would have paid R400 000 – and the lady would still be short R200 000. Only now, she cannot complain that she was done in!
The solution:
The first solution is to make an inventory of your household content and put a replacement value on everything. Kitchen appliances are easy, because there are regular ads in the newspapers. The same (normally) with furniture. From experience I know that it does not take all that long.
Alternatively, make a list of things that you would like to insure and try to agree with the insurance company that only the things on the list will be insured.
Lastly, take photographs of everything and give it to your broker. I have photos of client’s stuff on my computer. It is an excellent way to proof that you actually did have the things you lost.
I hope this helps!