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House & Home March 11, 2022 By Budget Insurance
Home contents insurance is an investment everyone makes but hopes to never use. Watching that direct deposit go off your bank account every month can feel unnecessary if you don’t have anything tangible to show for it. That’s why it’s so tempting to lower your monthly premiums and by extension, your home and contents insurance coverage. While this mentality can save you a few rands it can cost you thousands. Discover why you should avoid being underinsured and how Budget Insurance provides customers with insurance for home contents that promises peace of mind.
When you buy home contents insurance, you’re purchasing coverage to replace household items that get damaged or stolen. You’ll have to decide what you want to insure and provide your insurer with accurate details of every insured item. The goal is that you’ll be able to place a claim for one or more items and receive enough money to replace them all with reasonable substitutes. This is why you need the right amount of cover for your home contents.
This is where the problem of underinsurance comes in and it can take place intentionally or accidentally. To deliberately underinsure your home contents is to insure them for less than their replacement value. Should you make a claim and be underinsured, your insurer will likely pay you out according to the principle of ‘average’. This means they’ll divide the amount you’ve insured an asset for against its value at risk and then multiply that figure by the amount of loss. No matter how you approach this scenario, it means you are paid less than you need.
It’s easy to underinsure yourself by accident. This can happen when you fail to properly take into account the true value of your insured belongings in line with inflation. Even if your monthly premiums increase due to inflation, this doesn’t automatically mean your coverage will increase correspondingly. Unintentional underinsurance can also take place when you insure an item for its market value and not its replacement value. In this scenario, the home contents insurance policy will pay out whatever the market value of the item was set at and what it will now cost to replace it.
There are other ways you can fail to optimise your home contents insurance. Many people forget to update their house & contents insurance when they replace an item or buy a new one. Others don’t even realise that certain high-value items require specialised insurance coverage for any related claims to be valid. Make sure you get sufficient home contents cover. Find out to correctly estimate your home contents value with Budget Insurance.
To better understand what can happen when you choose the wrong level of home contents insurance, consider the following scenario:
Ashwin and Erika Naidoo have recently moved into a new home and have brought with them their existing appliances and furniture. The couple’s most treasured possession is their expensive and state-of-the-art home entertainment system. When Erika insures the system, she lists its value as what they paid for it a year ago. She doesn’t mention that last year they replaced the system’s original wired speakers with wireless ones.
Another year passes and Ashwin and Erika continue to pay their premiums faithfully. While they’re away from home on a holiday, someone breaks into their home and steals their entire home theatre system. While shaken and upset, the couple feels better knowing they’re insured. That is until they file their claim. They’re shocked to discover that replacing their home theatre system with the exact same make and model that was stolen will cost thousands more than what they insured it for. They also won’t be able to replace their speakers with wireless ones as they failed to alert their insurers to this fact. In the end, they’re forced to purchase a cheaper and less impressive home theatre system. If Ashwin and Erika had regularly updated their insurance as they improved their home theatre system and made an effort to update its replacement value, they wouldn’t be in this position.
To avoid being left in a lurch, apply the following tips to prevent underinsuring your home:
Understand what counts as household contents: Anything that you’d take with you if you moved to another home is usually covered by home contents insurance. This can include the clothes in your cupboard and the food in your freezer. If you keep certain items on you (such as your cellphone or office keys) you might need to insure them with personal possessions insurance. Any belongings used to run a business might also need separate business insurance coverage.
Create, share and update an inventory list: Take the time to list all the home contents items to be insured. When calculating their replacement value, pretend you’ve been tasked with creating a shopping list with pricing for replacing each item right now. Update this list when you replace anything or buy anything new. Once a year, research and update each item’s value in line with annual inflation. Always share any changes with your insurer.
Separate your valuables: Any items that are very expensive, rare or might appreciate in value in future might need to be insured separately or under specific conditions. Make sure you know how your insurer will cover items that fall into this category. For example, you might be able to include a diamond ring in your home contents insurance, provided it’s securely stored and you have an official valuation certificate for it.
Home insurance can seem complicated but it really isn’t. Take the time to ask your insurer as many questions as you need to understand your cover and their claims process. Budget Insurance offers one of the most affordably priced content insurance in South Africa. This can be tailored to your exact needs. Ready to get insured? Then simply review our offer and request home insurance quotes today!