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Friday, June 1, 2007
Persistent practice

According to market research by Santam as much as 40% of insurance policyholders are under-insured, leaving them at serious financial risk.

Caroline da Silva, the company’s Head of Portfolio Management points out this is because in terms of his insurance contract the policyholder would receive only partial compensation for an agreed loss. Some clients may be as much as 45% underinsured. For example, suppose the replacement value of a person’s household contents was R200 000, and yet the client was only insured for R110 000. In the event of a burglary, say R20 000 worth of goods were stolen. Because of his underinsured position only 55% of the agreed loss, or R11 000 would be paid out. In other words he would face a personal financial loss of R9 000.
“No-one wants to come up with cash when they are experiencing a traumatic time,” she notes. “Under-insurance can put people under severe financial strain.”
She adds that most people fall into the trap of under-insurance because they are unaware of the pitfalls. Because of the prevalence of crime individuals tend to insure only what they think may be stolen in the event of a burglary. Insurance, however, is comprehensive and covers you for far more than crime, so you really should insure for what it would cost you to replace everything you own should your house burn down in a fire.
“Not insuring your assets at the correct replacement value is also one of the main mistakes people make. The sofa that you bought five years ago for R1 500 might now cost R3 000 to replace. The contents of a house are insured at replacement value (vehicles are insured at market value). Therefore, you have to revise your policy at least annually to make sure that your cover remains adequate.
“Also very important is for people to remember to insure the more arbitrary things too like curtain rods, curtains, bedding, loose carpets, books – in other words all your household goods and fittings. Policyholders should also immediately add new purchases and gifts to their policy.

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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