By: Siyakha Masiye, spokesperson at MiWay Insurance

The reality is that even though many South Africans have insurance for their homes, cars and other valuable assets, the vast majority are still underinsured. In contrast, a concerning number of people are over insured. Either scenario can have serious financial implications both in the short and long-term, which is why it’s important for policyholders to strike the right balance for their unique insurance needs.

Siyakha Masiye, spokesperson at MiWay Insurance says that despite the misalignments that could cause someone to become underinsured, in most cases, it’s a reality that creeps in over time, rather than at the initiation of a policy. “Many policyholders fail to understand that insurance is not a static financial tool. Rather, it is a vital product that changes and requires amendment as the policyholder undergoes different lifestyle shifts such as moving homes, changing a car, marriage, having children or even career change.  

Other changes that need to be considered are developments in the financial market and the inflation rate of certain assets. When insurance coverage is not adjusted to reflect these changes, people are at risk of either not having enough coverage to account for the full replacement of their property or assets or paying unnecessarily high premiums. Insurance is such an important part of the personal finance mix that neglecting to check up on it means putting your long-term financial wellbeing at risk.”

Fortunately, as Masiye adds, there are 3 simple measures that any policyholder can take right now to avoid either being under or over insured, and to sidestep any nasty surprises.

Keep track of your appreciating assets

Deciding how much cover is needed is referred to as the ‘sum insured.’ Depending on the nature of the coverage, the sum insured may need to change over time. For example, a policyholder may opt to take out home contents insurance to cover their valuable possessions.

While many of those possessions may depreciate as they age, items such as high-value art, fine wine collections, musical instruments or vintage furniture could very likely increase in value as time passes. This is true for clothing as well and other household items that would cost more than they did when you first bought them, should you need to replace them after a flood or fire, or any other insurable event. Being underinsured will mean not having adequate coverage to allow for full replacement should the unexpected occur. On the other hand, being over insured could result in paying higher insurance premiums than necessary – more than your goods are worth.  

For this reason, Masiye recommends having your assets valued at least annually to determine the level of appreciation or depreciation and whether the sum insured needs to be updated to reflect any changes.

Think replacement cost

A common mistake that people make when it comes to insurance is not properly accounting for the complete replacement of the insured items. In some cases, there may be costs over and above the sum insured that need to be considered should the item be destroyed or damaged beyond repair.

For example, on a home insurance policy, there are additional, hidden costs that may be involved with replacing a property if it were to burn down. These could include architectural costs, labour costs and conveyancing fees.

Failure to take these costs into consideration could result in the policyholder becoming underinsured and not being able to claim the full replacement cost if the need arises. “In the case of a house, having the property valued annually is also a healthy financial habit – keeping abreast of any changes to its value and the added costs involved will allow you to make the most informed decision on how much cover you need,” says Masiye.

Doing an annual insurance check-up with your insurer is one of the best financial practices to develop and the most effective way to ensure your cover matches your needs now and in future.