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Know Your Policy – Part 1; The Average Clause

By Kayser Baird | Durban | July 7, 2014

Our ultimate goal – to pay out every client in full every time they claim!

~Kayser Baird Insurance

It is a harsh reality that policy holders don’t always get paid out in full for their claims. There are many reasons for this but the most common reason is underinsurance. If you have insured your house contents for R200,000 and you actual replacement value is R400,000 you will only be paid out 50% of any house contents claim, irrespective of how much you are claiming.

This is known as the “Average Clause” and although it may seem unfair at first, it is a vital part of any insurance contract. The average clause does not only apply to personal insurance policies, but to a number of other types of insurance contracts as well.

How does it work?

You and your neighbour may live in identical houses, but you may have double the value of house contents as your neighbour. If you insured your contents at the same value as your neighbour, you would both be paid out the same amount in the event of a total loss. This is self explanatory and easily understood – what people don’t realise, is that even if you have a small claim – average will be applied and you will be paid out proportionately depending on the extent to which you are underinsured. This is because you are entitled to claim for any and all of your house contents, therefore the insurance company is exposed more to you who has R400,000 worth of contents, than to your neighbour who only has R200,000 worth of contents.

Even if you don’t like this aspect of personal insurance, you can take some comfort in the knowledge that all insurance companies apply the average clause not only in South Africa but abroad as well. The only way to protect yourself against underinsurance, is to make sure that you are insured at the right value and here is how to do it;

Make sure that you include everything in your calculations

If you decide to leave out your old furniture or that wardrobe of old clothes you may end up underinsured. The reason for this is that you are entitled to claim for those old clothes or that old furniture if something happens to them, and the insurance company would have to replace them for new. Therefore, the insurance company must collect a premium for those belongings whether you want to insure them or not.

Use replacement value, not purchase price or market value

You must insure your belongings at what it would cost you to replace them today. You need to increase your house contents sum insured if you acquire more belongings, or to allow for inflationary increases to goods. If you bought a lounge suite for R5,000 20 years ago, you need to insure it at what it would cost you to replace it today.

Make sure that you include the value of jewellery, antiques, valuables or collections

If you have a R100,000 antique dining room table, you must make sure that the full value of this is included in your House Contents sum insured. The same would apply for jewellery, collections or other valuables.


Next week in “Know Your Policy” we look at insurance for your belongings while you are away from your home in Part 2 – All Risks Insurance.


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