What we mean when we use the word “average” – A glossary of insurance terms.

Insurance jargon can be difficult to understand. Phrases such as “average”, “market value vs replacement value” and “underinsurance” etc. are terms which may seem perfectly normal for someone who works in insurance but will confuse the average man in the street.

The FSCA (Financial Sector Conduct Authority) requires financial service providers (such as insurance companies) to provide information in a fashion that the average person on the street would be able to understand and interpret.  Your policy wording explains these terms in detail. We also understand that it is a lengthy document and for your convenience, we have pointed out some of the key terms that you need to know in order to help you better understand your policy.

Underinsurance and average

Two terms that are widely misunderstood are underinsurance and average. Underinsurance occurs when your insured amount does not accurately reflect the value of your assets. As an example, your house is valuated at R1 000 000 and you only insure it for R800 000. Continuing with the above-mentioned example, we will explain the term “average”.

When you look at the difference between R1 000 000 and R800 000, it is clear that you are R200 000 or 20% underinsured. This means that with any claim, you will only receive 80% of whatever you might have to claim under that section. Should you for example experience water damage to the value of R10 000 in your home, the maximum that you will be able to claim is R8 000. You can imagine what the consequences of this principle could be when it is applied to cover on buildings. It is also crucial to keep proof of ownership for your assets in order to avoid limited compensation. The best thing to do is to speak to your broker and ask his advice.

Another concept our clients seem to misunderstand is that of market value, replacement value and retail value of a vehicle. To clarify the differences between these three methods of evaluation, we have added in short, descriptive definitions for each:

Market value: The reasonable market value uses the retail value as the base and takes your vehicle’s mileage into consideration, the condition of the vehicle as well as any extra items added to the vehicle.

Replacement value: The price of a brand new model of the vehicle you own. If you have a 2019 model vehicle, contact your broker to find out more about our replacement value cover for your vehicle.

Retail value: The retail value of a car is the average price a car dealer would sell it for.

Proof of ownership

The final concept we would like to provide clarity on is that of proof of ownership. This is simply a method in which you prove to the insurer that you are the owner of the item in question. This can be in the form of proof of purchase, the original box of the item or a serial number linked with a photo kept on record. A good example of a challenge in proving ownership, is where the item is an antique piece that is so old that one cannot place a value on it based on what it was purchased for. The best route to follow is to have it evaluated and to keep that evaluation as proof of ownership to avoid partial pay outs.


The golden rule is: “When in doubt, contact your broker.” We are more than happy to assist you with any queries you might have.


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