Being robbed or burgled is an unpleasant experience that can be exacerbated by insurance companies not paying out full claims even though monthly payments have religiously been made.
Keith Kennedy, executive general manager at Mutual & Federal, says the most common problem with insurance claims is that people tend to underinsure their household goods.
According to Kennedy, a premium is based on the total value of household goods as this diversifies the risk. For example, a fridge is less likely to be stolen than a television, but if it is only the TV that is insured, the premium would be far higher.
Therefore, if one has been paying a monthly premium on R50 000 worth of household goods and their actual value is R100 000, then the insurer argues that half the premium has been paid for. In the event of a theft, the insurer will only pay out half the claim.
Underinsuring is not necessarily the result of someone trying to hoodwink the insurance company; it tends to be something that creeps up on you. One might get a really good bonus one year and decide to splurge on a new plasma-screen TV and a home entertainment system. This will add R30 000 to the value of the household contents but, if the insurance company has not been informed, one may get a nasty surprise if a claim needs to be made.
An activated alarm system is another industry requirement that could catch one off guard. If an insurance contract insists that an alarm systems in place, this could also create problems in the event of a burglary. Kennedy says that while insurance companies may insist on an alarm system in certain geographical areas or offer discounted premiums if one is installed, it must be remembered that this is a very onerous condition. It means that the alarm must be activated every time one leaves the property. If one forgets to activate the alarm when popping down to the shop to buy some milk and returns to a break-in, the insurance company will not pay out the claim.
The fact that insurance companies prefer to replace goods rather than pay cash can also be a bone of contention. ”The principle behind insurance is to put you back in the position you were in before your loss. If you have insured a TV, we will replace it with a TV. You have not insured cash,” says Kennedy.
An insurance company may offer the option of a cash payment, but it will usually be lower than the replacement value of the item insured. This is because insurance companies have tremendous buying power and they can usually get discounts on items that need to be replaced. If one wants cash, they will deduct the discount they would have received when replacing the item.
Kennedy says the discount purchasing power of insurers is one way they cut costs. ”With 80% of premiums going to replacement values, we try to keep costs as low as possible. The more cost efficient a company, the lower the premiums they can offer and the more business they will write.”
When making claims, always tell the truth. ”The assessors have a very good feel for when someone is lying because they investigate claims all day. Even a small misrepresentation could result in your whole claim being repudiated,” says Kennedy.
Insurance tips
- Compare similar quotes when shopping around. One quote may seem cheaper, but it may include onerous conditions one should be aware of. Also understand how the excess is calculated — the amount that has to be paid towards a claim. Some companies have a flat excess rate while others may base it on the percentage insured. Some companies base it on the percentage of the claim. This could be tricky if one has experienced a big loss.
- The most expensive type of household insurance is all risk. This is the insurance of items one takes out the house such as cellphones, sunglasses or jewellery. On normal household items, which are only covered if they are in the house, the premium is about 3% of the total value. However, for all risk, that goes up to 12%.
- When purchasing short-term insurance the broker or adviser is obliged to disclose all the conditions imposed by the contract, such as alarm activation.
- If unhappy with the services of an insurer, contact the short-term insurance ombudsman on (011) 726 8900. It is a free service and it is cheaper than using a lawyer.