One of the most foundational principles insurance is built upon is the principle of indemnity. Indemnity means that the Insurer will endeavour as far as possible to put you back in the position you were before an insured incident occurred.

This can happen in various forms which is either to repair damage, replace damaged or stolen items or settle the value of the items in cash. It is usually at the Insurers as to which method of indemnity they will grant, but this decision is based on various factors which include:

• the cost and availability of expertise to repair an item
• the cost and availability of the same or similar item to replace the item
• the progression of technology and product advancement to provide a similar product or item to the one lost or damaged.

This becomes especially tricky with one of the foundational legal principles of insurance, which is betterment, as this principle means that one should not gain through an insurance contract but be put back in a neutral position, as it were, prior to the insured incident. Due to product development and the pace of technological enhancements this principle often becomes difficult to apply as so many products have been enhanced in functionality and operation within a 5-year period that replacing an item almost always becomes considered as betterment.

When I then consider the insurance value of my house, I need to consider what it would cost to rebuild my house, and not just what I might owe the bank on my home loan or mortgage agreement. In addition, I need to also remember that any real estate agent would be concentrated on the value my house will sell for on the property market, which is also not completely indicative of the rebuilding costs.

Lizelle Truter, Specialist Claims Manager at MUA, recommends that the reinstatement cost needs to take into account the cost per square meter to rebuild the dwelling as it currently stands, with the same fixtures and finishing. It should also include an additional 10% of cost (approximation) to allow for things such as demolition, rubble removal, architects and engineer’s fees.

A useful guide to consult is the Africa Property & Construction Cost Guide which is published annually by AECOM (Pty) Ltd.

With vehicles however, value is relative and has been debated for so long, due to the immediate depreciation factor and drop from retail to market value. It has also caused much debate about the correct insurance value a vehicle should be insured for, especially when most new vehicles are purchased on finance arrangements at the retail value.

Thankfully, the discretion lies with the Insurer, especially when that Insurer is a customer centric focussed business and considers the impact to their client with as much care as the impact to their business. For this reason, MUA have provided an enhanced optional benefit in the Executive Policy.

This means that if I purchase a vehicle new from a dealership, I arrange my insurance with MUA with the New for Old option and within the first 3 years of owning the vehicle an insured event happens which causes either:

• the vehicle to be stolen or hijacked and not recovered; or
• damaged and it is deemed uneconomical to repair
 

MUA will either replace my vehicle with a new one of the same or similar make and model or pay the cost of purchasing a new vehicle of the same make and model. The value of the new vehicle, however, is limited to the same value of the original vehicle I purchased or at reasonable retail value.

After the first year of owning a vehicle I am unlikely to be offered the same value I paid for my vehicle by a dealership which is why the replacement vehicle then would be a reasonable retail value. This means that the value is a published value and determined using the Auto Dealer’s Guide as published in the month the damage or loss occurred.

Used with permission from MUA Insurance Acceptances (Pty) Ltd