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Property insurance: A look at how spending too little can cost you a lot in the long run

South Africa has one of the most competitive insurance markets on the African continent, and it is good to know that the majority of consumers in this country understand the value of insuring their assets against the many risks that we face every day. File Image: IOL

South Africa has one of the most competitive insurance markets on the African continent, and it is good to know that the majority of consumers in this country understand the value of insuring their assets against the many risks that we face every day. File Image: IOL

Published Jun 16, 2022

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South Africa has one of the most competitive insurance markets on the African continent, and it is good to know that the majority of consumers in this country understand the value of insuring their assets against the many risks that we face every day. Still, in an economy where consumers are under pressure to service debt, insurance cover for valuables such as one’s car or home can often be seen as less essential. While that doesn’t necessarily mean that people will cancel their insurance altogether, consumers may be tempted to do something that’s almost as bad - underinsure.

This is according to Janine Horn, Financial Adviser at Momentum, who says that skimping on insurance premiums, not insuring your assets for their actual worth, or simply not staying up to date with the actual replacement costs of your assets, could all end up costing you in the long run.

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“In fact, according to the surveyors, Quantum Risk Assessment, this is actually quite a widespread problem. The company estimates that 80% of South Africans are underinsured by an average of 51.9% on their buildings and possessions.”

She adds that many people may be under the impression that they are saving money by cutting down on their insurance payments, but this approach could actually add to their financial woes.

“It’s true that many more households are facing increasing debt and shrinking disposable income. But in the event of a claim, the claim payout you receive if you are underinsured will likely not be enough to cover the replacement or repair cost in full. If that is the case, you will have to pay the difference between the sum insured and the actual cost from your own pocket.”

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In short, Horn emphasises that paying for the right amount of insurance cover is more economical in the long-term. With this in mind, she has some tips for those who want to make sure they have the right cover:

1. Make sure your sum insured includes all the costs involved

In the case of your home, your sum insured has to include the cost of rebuilding all the structures on your property. Boreholes, electrical cables, solar panels, and any pathways and walkways are all important here. In addition, the costs should include VAT. Rebuilding is often costed per square metre and should take into account the construction, finishing and fittings.

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For household contents, you should update your policy when you upgrade your home or buy new things

2. Inform your insurer if you make any changes or new purchases that affect your cover

Renovations or additions to your home, items you buy or install, or any other upgrades all add to the amount you need to insure.

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3. Review your policy every year to keep track of inflation

It is critical to review your policy at least once a year to make sure the sum insured is equal to the current replacement value - in other words, what it will cost you to replace it today.

4. Get an expert opinion

When taking out a policy for the first time or when adding new items to your policy, it’s a good idea to speak to financial adviser on the best insurance cover for your needs.

“Being underinsured on your short-term insurance policies can have a significant financial impact on you and your family. The good news is that there are simple steps you can take to ensure you are adequately covered,” Horn concludes.

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