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!
Two people looking at the same thing, will see different things, even when they stand side-by-side. When they stand on opposite sides of a table, they see totally different things!
Yesterday I went to donate platelets. Before I can do that, I have to complete a number of forms to ensure that my blood is safe. One of the questions is: “Are you booked for an operation within the next six weeks?” I said to the attendant that I am seeing a knee-doctor in two weeks time and that he may very well want to operate. How will that affect the procedure. In other words, if I donate today, would I have to wait 6 weeks before I can have the procedure.
She answered, all that you do, is inform us that you have had the procedure when we call you again to donate platelets.
You see the difference: I am standing on my side of the table, completing forms and I want to know about how donating platelets are going to affect MY life. She is standing on the other side of the table and is only interested in how my actions are going to affect her business. Incidentally, I never got an answer, because I visited a Malaria area during my holiday and therefore my blood is at risk!
I am NOT getting at the Blood Transfusion Service! I am trying to make a point.
When we sit opposite the bank manager, the stockbroker, the estate agent, the financial advisor, the bond originator, we are sitting on opposite sides of the table. We see different things, we are interested in different things, we have different experiences of this thing or activity that currently bring us together. (You see money to buy a car, the opposite party sees commission to make ends meet at the end of the month.)
I have a list of things that is important for people to know and adhere to regarding short term insurance that I give to clients. Simply because to me it is so common, that I don’t think about it. And I forget that it is not common for my client! I work with short term insurance every day. My client only really deals with it when they claim. And that is when my knowledge of every day stuff could hurt them.
There isn’t and easy way to solve this problem, accept thinking about what you are doing, trying to identify the risks and asking about it. And insisting on an answer. Never settle for a vague answer, insist on a proper answer that explains everything in such a way that YOU understand it. After all, if I want your money, I must be willing to spend the time with you. And if somebody cannot or will not explain in such a manner that you understand, walk away. Find somebody else that will take the time to listen and explain.
Financial institutions are sales driven. They will try to spend the minimum time with you to get maximum revenues – they are running a business. And in many (most) cases, they will only give you enough info to get you to sign and whatever the law requires. It is excellent sales tactics and I understand why it works. And that is why so many fights get to the point where a client says: “you never told me.” “But you never asked! I told you all that is important and that I have to, I thought you understood what we are dealing with.” Obviously no sales person can share all they know with every client.
Therefore it is up to you to ensure that you are informed and understand. Never give up this right.