Understanding underinsurance and how to avoid it
Underinsurance happens when the value you specify for your belongings, or the rebuilding cost of your building is too low. This is a common issue in short-term insurance and can leave you significantly out of pocket and frustrated when you need your cover the most.
Your household contents are insured on a new-for-old basis. This means that, at any time, your sum insured must be enough to buy brand-new items at normal retail prices if you suffer a total loss (e.g., from fire or theft).
Tip: Don’t guess! Make an annual home inventory to calculate the true replacement value. This ensures you insure the real value — not a rough estimate.
- The full cost of the structure, fittings, and fixtures
- Walls, paving, fences, gates, and outbuildings
- Professional fees (architects, engineers)
- Demolition and rubble removal costs
- VAT
Example:
- You insure your building for R2,000,000, but its actual rebuilding cost is R5,000,000.
- A fire causes damage costing R800,000 to repair.
- You are only insured for 40% of the true value, so the insurer will pay 40% of the claim amount.
- Payout is R320,000, instead of the R800,000 claimed.
Motor Vehicles:
Insurers use TransUnion (M&M) retail values, updated regularly. Therefore, average does not apply. However – it is imperative that we have the correct details of your vehicle to ensure that the correct M&M code has been used to insure it, and that you have advised of any extras added to the vehicle, which would increase its value.
All-Risks/Portable Possessions:
These are covered up to the specified limit you choose. If this limit is too low, you pay the shortfall yourself.
- Electronics like phones and tablets usually depreciate in price over time, so older models may cost less to replace.
- Jewellery: Should be revalued every 2–3 years because precious metal and stone prices fluctuate.
In summary:
- Review your sums insured every year.
- Keep your home contents inventory up to date.
- Arrange a professional rebuilding valuation for your property at least every five years or when alterations occur.
- Revalue jewellery and high-value items regularly.
- Let us know about renovations or new purchases.
- At Ambiton, we apply an annual escalation percentage to your sums insured to help protect you against inflation — but you still need to check your values are adequate for your needs.
Underinsurance can turn an insurance claim into an unexpected financial burden. We will send your annual short-term renewal to you each year at the anniversary of your cover. Please do read this correspondence very carefully and advise us if anything needs to change.