How much is that worth?

When insuring valuable items, or a collection of items, we do not always have or know the correct monetary value off-hand. We make a best estimate but if we really had to sit down and make a list and check prices in detail, or if we take an item to a professional valuator, we often find that the value is different from what we thought.

We have also often heard how many people are generally underinsured - much of this is because they provide a best estimate of the value of their items to their broker instead of performing a detailed valuation of the cost of their belongings.

In addition, there is a difference between how much an item is worth and what the item would cost to replace. This is generally the other biggest cause for underinsurance.

Let us also consider another scenario that may lead to an underinsured position: if, for example, at the time that you took out your MUA policy, you had a three bedroom house and it was fully furnished, but now, five years later, you have added an additional two bedrooms with furniture and you then suffer a loss, the cost to replace all your household contents can be significantly higher, and if the insured value on your policy schedule has not been kept up-to-date, you will also face underinsurance.

When you are underinsured, and you experience a partial loss, the insurer will not pay out the full value of your claim, as the insurer will apply so-called “average” to your claim. Average is calculated as the insured value as a percentage of the actual value of the insured property at the time of the loss. For example, if the insured value of your home contents is recorded as R700,000 on your policy schedule, but it is determined that the actual value of your contents is in fact R1,000,000 at the time of the loss, it means that the insurer will only pay 70% (R700,000 ÷ R1,000,000) of your claim. In other words, you are 30% underinsured.

In the above example, if you experience a partial loss of let’s say R800,000, it means that the insurer will only pay 70% of R800,000 – in other words R560,000 of the claim, even though you are insured for R700,000. If, however, you experience a total loss (in this case, R1,000,000), the insurer will only compensate you for the insured value on your policy – in this case, R700,000.

Buildings

If you have to properly evaluate the correct sum insured amount for your house, you need to consider what it would cost to rebuild your house in the event of a total loss, as well as whether your house is financed and the amount that it is outstanding on your bond.

Another important factor to remember is that, in the event that your house needs to be re-built following a loss, professional fees can form a significant part of the overall cost. These fees would include engineers’ and other associated costs that must also be taken into account when considering your sum insured.

Household Contents

Ideally, if you are to properly manage the value of your household content assets, you should have an inventory for your home on which you have recorded what furniture and appliances you have, as well as the values to replace those items. Each year, you should evaluate this list again to consider if there are any new purchases you should add, replace, or simply remove. This is most helpful when renewing the values or confirming the values for insurance purposes.

However, if there have been any special purchases made, or high value gifts received, it would stand you in good stead to keep the purchase documentation on file as proof of value. If the item is a gift, a valuation certificate and certificate of ownership would be useful, should the item become damaged or lost, which will make your insurance claims process that much simpler.

As a best practice, the values on your inventory should be reconfirmed with retail prices at least every 3 to 5 years to ensure that your annual incremental increases are on track.

Something else important to remember is that the insured value for your house contents should be sufficient to cover all your movable possessions inside the home. We don’t often think of certain items in our home as being attractive to theft and don’t assign a Rand value to them. Your insurer typically covers you for more than just theft and consideration must be given to cover items against other perils, such as fire and water damage. It is, therefore, important to remember those teaspoons in your top drawer and the patio furniture on the veranda.

Jewellery, Paintings, Bicycles, Cameras, and other valuable items

Here, we are only talking about really valuable items, and this list is certainly not exhaustive. In this category of items, it is advisable to have a valuation certificate for any one item that is worth more than R25 000. This would also apply to pairs and sets such as earrings, wedding rings, Russian Fabergé eggs, collector’s items, imported designer shoes and the like.

In terms of the MUA Executive Policy, any unspecified all-risk item that is valued at more than R75 000 per item should be kept in a locked safe which is fixed to the building when the item is not being worn or used. A claim for any of these items, if you were not wearing them at the time, must show evidence of forcible and violent entry into the locked safe which is fixed to the building. If no forcible and violent entry is evident then the claim will be limited to R75,000 only.

It is always advisable to keep your purchase invoices for purchases of this nature — you will need them for guarantee and warranty purposes, so keep a copy for your insurance too. We also recommend keeping any repair or service-related invoices. The model and serial numbers of items are valuable pieces of information.

The Average Waiver Benefit

MUA offers its Executive Policyholders the optional “Average Waiver Benefit” at an additional premium. If you select this benefit, MUA will waive the application of average at the time of loss – taking away the uncertainty of underinsurance and significantly simplifying a potential claim in the future. It is important to note, though, that any claim would still be limited to the maximum of the insured value that is stated in the policy schedule.

Subject to terms and conditions, MUA will appoint a valuator to value your house and/or contents, and the value determined by such valuator will be accepted as the insured value as stated in your schedule.

Ostrich in the sand?

Remember in the most recent years we have seen total losses in Knysna, St Francis Bay, Port Elizabeth, Durban, and Cape Town to name a few — all due to natural disasters such as fire and torrential rain. With the impact of climate change and the phenomena we are experiencing, none of us can afford to be underinsured. Be proactive in your approach to insurance — it will save valuable time and effort in the long term.

Valuation services

MUA appoints valuation specialists who conducts a valuation of your house as well as your household contents and arrange for valuation certificates where required. The purpose of this valuation is to determine a more accurate insured value for your house and household contents and therefore taking away the uncertainty of being underinsured. In our experience, around 85% of our clients would have been underinsured if we had not provided this service.