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Most people are confident that they have a good idea of the value of their property, but many are often surprised when their insurer thinks differently, and pays them out less than expected in the event of loss, Alexander Forbes Insurance says.
If you insure your assets for less than what the insurer believes you should have insured them for and you suffer a loss, your insurer will apply what is known as the condition of average.
For example if, as a home owner, you insured your home for R500 000 instead of R1 million, you would be 50-percent under-insured and your claim – even if it is for less than R500 000 – will be reduced by 50 percent, Gari Dombo, the managing director of Alexander Forbes Insurance, says.
To avoid under-insuring your home, you need to insure it for at least 90 percent of what it would cost to rebuild it.
You can’t just use the purchase price of your home because, depending on the market, this may be higher or lower than the cost of rebuilding.
You need to determine what it would cost to rebuild the entire property – taking into account current building and materials costs as well as professional fees for, say, an architect, and the costs of demolition, Dombo says.
You do not need to insure the land, which will vary in value according to market, because you’ll still own the land, no matter what happens to the structures on it.
Dombo says that if you are unsure of what it would cost to rebuild your home you should consult a professional valuer or a building company.
When you insure the contents of your home – your furniture, appliances, clothes and so on, rather than the building itself – the sum must be enough to replace, with new assets, everything you have in your home, Dombo says.
If you specify valuable items in the all risks section of the policy, the value should be sufficient to replace each item covered with an equivalent new one, he says.
When it comes to jewellery and objets d’art, if you can’t prove the value of an item, the chances are good that you may be disappointed if you need to claim, Dombo says.
Also, if your valuations are old – for example, on a wedding ring you had valued years ago – you are probably under-insured.
The sum insured under a motor vehicle policy should be the price at which your vehicle could have been sold by the motor trade immediately before your loss, Dombo says.
This can be difficult to establish for older and imported vehicles and you may need to consult the agents for your vehicle, he says.
Don’t forget to specify any accessories you add to the vehicle that do not come standard and to insure them at replacement cost.