Insurance Encyclopaedia


Underinsurance, in the context of home and contents insurance, is when the amount you’ve chosen to insure all your belongings for is less than their actual replacement value, i.e. what everything will cost to be replaced as new.

Will my insurer let me know if I’m underinsured?

The bad news is that you will usually only find out when you make a claim, and your insurer sends an assessor to determine the value of your loss or damage. In assessing your claim, the assessor checks whether the amount you insured your things for was enough to replace everything in your house before your claim happened. What we mean by ‘replace everything’ is that the assessor will check what it would cost to replace all of your belongings new, today.

What happens when I claim and I am underinsured?

If you are underinsured your insurer will reduce the value of your claim by the same proportion by which you are underinsured. For example, if you insured your contents for R200,000 but it costs R400,000 to replace all your stuff with new things, you are underinsured by 50% and your insurer will only pay 50% of any claim you make. If you submit a claim for R10,000 you will only be paid out 50%, which is R5,000. This is referred to as “the principle of average”.

How can I prevent being underinsured?

Make sure you insure your stuff for what it would cost to replace it as new today. Also, update the value of your home contents and property at least annually to account for inflation or for any new things you’ve bought. If you are covered by Naked, you can update the value of your insured items instantly on the Naked app.