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Understanding underinsurance and how to avoid it

09 July 2025

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.

Many people mistakenly insure their building for its market value or purchase price. However, the insured value should reflect the full cost to rebuild the structure from scratch, which is generally higher than the market value.Your buildings sum insured must include:
  • 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
We strongly recommend having a professional rebuilding cost valuation performed every few years, or when you renovate significantly. If, at claims stage, your sum insured is found to be too low, your insurer may apply the principle of average. This means they will only pay your claim in the same proportion that you were insured.

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.