WeeklySA_AdminUNDER-INSURANCE: Many homeowners discover after theft, fire or flooding that their insurance payout falls far short of expectations — often because their contents valuations were never updated…
By WSAM Reporter
Insurance is meant to provide financial protection when disaster strikes. But many policyholders only realise the gaps in their cover after filing a claim — when the payout turns out to be far lower than expected.
The Non-life Insurance Division of the National Financial Ombud Scheme (NFO) warns that outdated home contents valuations are one of the most common causes of disputes between consumers and insurers.
Home contents insurance covers personal belongings inside a home — including furniture, appliances, clothing and jewellery — while building insurance covers the structure of the property itself.
According to Edite Teixeira-Mckinon, Lead Ombud of the NFO’s Non-life Insurance Division, consumers often fail to review the insured value of their possessions regularly, leaving themselves vulnerable to underinsurance.
“Jewellery appreciates, technology depreciates, and replacement costs shift constantly,” she said. “Without regular reviews, your cover may leave you dangerously exposed, turning years of paid premiums into little more than false reassurance.”
Underinsurance
One of the biggest risks is underinsurance, which occurs when household contents are insured for less than their full replacement value.
In such cases, insurers may apply the principle of average, meaning the settlement amount is reduced proportionally. Even a legitimate claim may therefore result in a smaller payout than the policyholder expected.
Consumers are advised to regularly review the sum insured — the maximum amount payable under the policy — to ensure it reflects the current replacement value of all household contents.
Replacement value
Insurance policies generally cover the replacement value of an item rather than the original purchase price.
Most household goods depreciate over time because of wear and tear. As a result, the cost to replace them may be lower than the price originally paid.
However, some items — particularly jewellery — may increase in value due to rising gold or gemstone prices. Without updated valuations, policyholders risk receiving settlements that do not reflect the true value of these items.
Proof of ownership
Another common obstacle arises when policyholders cannot provide proof of ownership or value for items they claim.
Receipts, invoices, photographs or valuation certificates can all serve as evidence. Older items or gifts often create complications because documentation may be unavailable.
In such cases insurers may settle claims at a lower entry-level value.
Consumers are also warned never to submit inflated or false documents. Most policies contain a total forfeiture clause, meaning even one fraudulent item can result in the entire claim being rejected and the policy cancelled.
Case study: dispute over stolen ring
Teixeira-Mckinon highlighted a recent case in which a policyholder challenged an insurer’s settlement after her ring was stolen.
The insurer offered a cash payout of R59,030, based on a replacement quote from its service provider.
The complainant argued the amount was far below both the sum insured of R155,000 and her jeweller’s valuation certificate of R125,000.
However, the insurer explained that the sum insured represents the maximum possible payout, not a guaranteed amount.
Because the insurer was able to replace the ring with an identical item for R59,030, it maintained that the settlement complied with the principle of indemnity — restoring the policyholder to the same position she was in before the loss.
The NFO agreed with the insurer’s position. The complainant ultimately accepted the settlement and a refund of the excess premium paid.
A simple but important lesson
The case highlights a key misunderstanding about insurance policies: the sum insured does not guarantee that a policyholder will receive that amount in the event of a claim.
“The sum insured is the maximum the insurer will pay,” Teixeira-Mckinon said. “If the replacement value of an item is lower, the insurer’s liability is limited to that amount.”
She urged consumers to regularly review and update valuations to ensure their cover accurately reflects current replacement costs.
“Insurance is not just about paying premiums,” she said. “It’s about making sure your cover truly protects what matters most.”
