The Average Condition

“Average” is the penalty that you will suffer if you have not insured your building or contents at the correct current replacement value.

The “Average Condition” in insurance policies affects claim payouts.

When insuring property (Property or Contents), you provide the insurer with the “sum insured” value.

It’s important to ensure this value (sum insured) matches the actual worth of your property. Underestimating that value could result in you suffering such a penalty at the claim stage.

If an incident occurs, and you haven’t paid enough premium to fully cover the replacement value, the insurance company will only pay a portion based on the percentage of the sum insured you’ve paid for.

To calculate the impact of underinsurance, we use the formula:

(Sum Insured / Value at Risk) x Claim Value

The Value at Risk is the current replacement or reinstatement value of your property. 

Here’s an example:

Let’s say you insured your building for R200,000, but it’s actually worth R400,000. A fire causes R300,000 worth of damage (Claim Value).

Using the formula, the underinsurance is calculated as:

(R200,000 / R500,000) x R300,000 = 60%

This means you’re underinsured by R180,000. Consequently, your claim payout would be reduced, and you would receive R120,000 instead of the full R300,000.

Possible Solutions:

To help you avoid underinsurance, we offer tools like “The Average Condition Calculator (below)” and “The Contents Inventory Calculator.” These resources assist you in assessing the value of your property more accurately, empowering you to make informed decisions and ensure proper insurance coverage.

At TCF & Associates, we understand the importance of getting the right insurance coverage for your property.