Last month whilst working on a claim, I realized that the claim estimate of almost GHC 600,000.00 had been reduced to about GHC 90,000.00. The claims officer justified the reduction as one of underinsurance. She had reduced the amount in proportion to how the insured had also reduced his Sum Insured to the Actual value to be insured.
Let us take a minute to understand some keywords. Assume you want to insure your building, and the cost of rebuilding is GHC 1 million. You feel either the whole structure cannot be destroyed or the premium is too much, so you wish to pay a lower premium; hence you reduce the value to be used for the insurance policy (i.e. the Sum Insured) to GHC 500,000. Now, there is a loss to the roof of the building, which costs about GHC 100,000.00. Because the actual value to be used for insurance should have been GHC 1 million and not GHC 500,000.00, we can say you have been underinsured, and only 50% of the loss will be paid. Thus, GHC 50,000.00
In most property policies, you will find out that the penalty for underinsurance is that you will be considered your insurer for the difference. Hence, what will happen is that your insurer will pay the proportion of the Sum insured related to the actual value to be insured. Then you, the insured, pay the difference.
In the case of a total loss, you will be paid the total Sum insured, but remember, you will not be able to reinstate or replace the lost or damaged item.
In the claim I referred to, the insured had insured at about 15% of the actual values. Insurers were, therefore, paying nearly 15% of the loss of GHC 600,000.00, which was about GHC 90,000.00.
When you purchase a Property Insurance policy, look for the requirements concerning the Sum Insured and insure appropriately; for example, a contractor may have to insure his contract works using the estimated completed value of the contract works, not a percentage of it. If this is not done, it can cause pain in the event of a loss.
Insurance pays genuine claims but is subject to the policy terms and conditions. Speak to your insurer or broker today.
#letsgetinsured
Isaac Kwakwa – Sarpong
tel: +233 275 197 275
