The ultimate test for the insurer, broker and client to make sure that the purpose of the insurance policy has been met is the claims process. In the event that the insured client should understate the insured value, the amount of the premium will be incorrect as it is based on the amount of financial risk or value of risk and the client underinsured. When destruction hits and a claim is filed the principle of average will be applied.
Average is a concept used by insurers to deal with either over or underinsurance. Underinsurance occurs when an item is insured for less than its actual value. Average will apply where the client is underinsured, whether deliberately or accidentally.
Should the damage result in a total loss, the sum insured will be paid out; an amount which will be insufficient for the client to replace the damaged or lost item.
A good example of this would be Anne and her flat. The cost to rebuild Anne’s flat would be 200 000 yet Anne says that she can only sell her flat for 100 000. Anne therefore only insures the property for R100 000. A horrible storm damages the flat and the damage is worth R150 000. This scenario will definitely leave Anne quite sour though she was the one who either did not specify properly or omitted important information.
In South Africa consumer education with regards to the insurance industry is an on-going challenge as the consumers are not familiar with insurance products and the financial services industry.
With certain pitfalls lurking It’s best to deal with a broker who will do a proper evaluation of your household contents as a once off. Then you can always just have a yearly discussion as to what changes have taken place and adjust your insurance accordingly. Delkor Insurance brokers have a full range of short term insurance options that will cover you or your business irrespective of industry and ensure that painless claims.