One of the most costly errors any one of us can make is to overestimate our short term insurance cover – be it on our primary residence, our car or even our own health and well being. Many of us may well rush into covering ourselves and our valuables without considering updating the policies on a regular basis and this could prove fatal.
Even if your chosen policy does protect you from rising inflation, you may find the value of your home simply outpaces it. Plus, the fact that many of us keep on collecting valuable and often priceless possessions without increasing the short term insurance cover could mean your personal property is criminally under insured.
Review the basic elements of your short term policies regularly
It is imperative that you review the basic elements of all your insurance policies on a regular basis, especially in these economically trying times. There can be nothing worse than submitting a claim only to be told you are not adequately covered.
The vast majority of property policies generally cover losses to your home, the related property and selected personal items. The provided cover for your possessions is usually worked out as a percentage of the total coverage of the house and is normally in the range of 50%.
When taking out a policy, it is important to be aware of the acts of God, or perils, that are not included in the cover. In the United States, for instance, flood damage is often not included in the overall insurance cover and home owners are encouraged to buy separate cover.
Here in South Africa, many insurance policies will not cover damages caused by riots or political turmoil and home owners have to address it as a separate issue.
Choose replacement cost cover over actual cash value
A smart move when ensuring that your possessions are adequately covered is to negate the urge to purchase a home owner’s policy with extra blanket coverage for your personal items and to rather opt to buy separate, additional cover for your valuables instead.
Remember, however, to choose replacement cost cover rather than the actual cash value. The latter, although it sounds like the better of the two options, takes depreciation into account and will only pay out the calculated market value of the item instead of the cost of replacing it.
Penny wise, pound foolish
Some brokers may suggest you try and save a little on your premiums by insuring your home for only 80% of its value. The thought process behind this startling proposition is that it is most unusual for your entire home to be destroyed in one fell swoop. But this idea has its definite snags, apart from the obvious one of losing your entire home to fire, earth quake or some other natural horror.
The problem with under insuring your home is that the cost of labour and materials could very well increase and instead of the claim covering 80% of the cost of re-building, it may only cover 73% of costs. And in these turbulent times, it may be very difficult for you to source the extra 27% needed for the job.
Quick policy pointers
• Make sure your policy automatically protects you from rising inflation
• Shop around for a policy that is tailor-made for you and your possessions
• Be aware of acts of God not covered by your policies
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