When it comes to insuring your property, striking the right balance is crucial. Over-insurance happens when your property is insured for more than its actual value. This means you’re essentially covered too much, leading to unnecessarily high premium payments that don’t match the worth of your property. It’s a common misstep that can significantly strain your finances without any real benefit.
Conversely, underinsurance is a frequent issue, particularly with household insurance. This occurs when the insurance coverage falls short of the actual value of your life or insured items. For example, underestimating the replacement cost of a building can lead to this problem. The downside of underinsurance is starkly evident when making a claim. If your property is insured for less than its replacement value, you might find yourself financially burdened to cover the difference. The insurer will only pay up to the insured amount, which may not be enough to fully replace the item or cover your loss, thus undermining the very purpose of insurance.
When choosing an insurance policy, it’s important to focus on replacement costs rather than just the market value. If you’re uncertain, it’s advisable to seek expert advice. Insurers base their quotes on the estimated cost of replacing the contents of your property or business, or the cost of rebuilding it. They typically rely on the estimates you provide, so it’s essential to be accurate.
Creating and regularly updating an inventory list of all the items in your home that you wish to insure is a good practice. This list should be reviewed at least annually to include new acquisitions and to adjust for inflation. Be careful not to undervalue or overvalue the replacement cost of your personal possessions, and remember that the market value of your house is not the same as the insurance value.
Moreover, consider additional costs that may arise from a loss, such as the expenses of clearing and transporting damaged or soiled stock, or potential rental costs. By paying attention to these details, you can ensure that your insurance coverage adequately protects your assets without leading to financial wastage.
By Sally Tlokana | Director