10/05/2008 17:21 - (SA)
Inflation opens cracks in your insurance policy
Nhlanhla Ncaca
WITH the inflation rate on the rise, consumers are advised to review their insurance policies.
According to short-term insurer Mutual & Federal, inflation does not only put pressure on the Reserve Bank but it also tests an individual's short-term insurance.
Executive general manager for business development and sales, Merrick Oeschger, says there is a challenge of slow consumer response to the risk of under-insurance.
Inflation and rising prices of imports can drive up replacement values of many household items from audio equipment to furniture and appliances.
This increases the likelihood that a policy holder will not be able to replace stolen or damaged items for anything close to the purchase price of three or four years ago.
The result is a growing gap between insured values and replacement values.
"You could be surprised at the gap that has opened up and the risks you have been running," Oeschger says.
He adds that a burglary, fire or storm damage could present an unpleasant revelation of the extent of this risk.
For example premiums may provide R100 000 in cover but the current replacement value might be R200 000.
In the event of a claim, an insurer is only obliged to make pro-rata restitution - in this case, meeting only half of the claim.
With major claims, it can be a devastating blow when families realise they have to make good the uncovered portion of the loss from their own pocket, says Oeschger.
He says a simple solution is for consumers to get a professional short-term insurance adviser to carry out a thorough review of the replacement values of their items.
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