The Goldilocks Conundrum: How much short-term insurance is just right?
5 Dec, 2022

The Goldilocks Conundrum: How much short-term insurance is just right?

Oswald Kuyler, Head of Short-term Insurance at Consult by Momentum

Picture this. You decide to take out household contents insurance. You have no idea what the total value is of the assets in your home, so you guesstimate: We’ve got a TV, some jewellery, a coffee machine, a set of golf clubs, furniture, some other bits and pieces…about R500K should do the trick. You instruct your short-term insurer to cover you accordingly while patting yourself on the back for doing the responsible thing.

Then one day, you come home to find that you’ve been burgled. You’re upset, of course, but “thank goodness we’re insured, you say to your family, “and, at least now we can replace our old TV with a fancy new model,” you add, to the sound of cheers from your kids.

So you call your insurer and the assessor visits your home. Lo and behind, [MOU1] they determine that the insured goods in your home actually amounted to R625K; you were under-insured by 25%. A pity I didn’t take the time to evaluate our possessions accurately, but at least we’ll still get R500K paid out, you think to yourself. That is, until your insurer explains the law of averages to you, and you have 25% knocked off your claim as a penalty, leaving you with a paltry R375K pay-out.

Under vs. over-insuring

Oswald Kuyler, Head of Short-term Insurance at Consult by Momentum, says that the industry sees this very scenario play out all too often, as consumers don’t take the time to understand the parameters of short-term cover, which includes business, vehicle, travel, pet and all risk insurance.

“At the time of loss, the assessor will look at the replacement value, which includes variables such as inflation, the current economic climate etc. If you haven’t inventoried your goods correctly, your insurer will view this as prejudice. As you haven’t insured your goods at the correct value, you therefore haven’t paid the right premium amount. As result, your insurer will penalise you and you won’t get the claim pay-out you anticipated.”

Yet, over-insuring is not the answer either. Explains Kuyler: “The goal of short-term insurance is to put you in the same financial position as before the loss occurred – not better off.

“This is where these products differ fundamentally from long-term insurance or investment policies. A component of your premium is based on the insured amount and insurers will not pay more than what is required as per their evaluation at the time of loss. Being too cautious and over-insuring yourself is simply a waste of money.”

He references the old tale of Goldilocks and the porridge that was too hot, too cold, and finally, just right.

“You don’t want to be under or over-insured; you need only the right amount,” he says.

He shares a few tips on how consumers can ensure they have enough short-term cover.

Inventory, evaluate & understand

Take the time to inventory your goods correctly, ensuring that you account for the replacement value and not the cost of goods at the time of purchase, says Kuyler. “There are professional service providers which will evaluate your goods for you. Some insurers offer this as a free service, so ask around, he says.

“It’s also important to take the time to thoroughly read the terms and conditions of your policy so that you understand exactly what is – and what isn’t – covered, and the circumstances that affect your cover. Assuming something is covered might result in disappointment, so always check with your insurer or financial adviser if you’re not certain,” Kuyler adds.

Also, remember that inflation impacts your cover, so increasing your insured amount by around 5-10% per year should account for this, provided there are no material or content changes.

For every milestone, think cover

A good habit to get into is to associate every major milestone in your life with an insurance outcome, says Kuyler.

“For example, buying a house could involve building and household contents insurance, while starting a family might see you trading your car in for a larger vehicle (impacting your vehicle insurance), as well as buying costly items such as car seats and prams, which would fall under all risk cover.

“With every milestone, run through the material goods the life event entails, and update your insurer or financial adviser accordingly,” he says.

The role of a financial adviser

While there are a number of direct insurers, never discount the valuable role a financial adviser can play in the event of a loss, says Kuyler. “They will compare various policies on your behalf, understand and interpret the fine print, answer your questions and ensure that you are adequately covered; without being under-insured or over-paying on your premiums.

“In the event of a loss, they will also liaise with your insurer directly to get the best possible outcome for you,” he concludes.


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