Home insurance · Underinsurance
Underinsurance and the average clause: why a R500,000 claim can pay out R300,000
If your home or its contents are insured for less than they would cost to replace, the average clause can cut every claim in proportion, not just a total loss. Here’s how the calculation works, what an ombud case shows, and how to keep your sums insured close to the real figure.
How the average clause works: an example
Average treats you as carrying the uninsured share of the risk yourself, so the insurer pays only the share you insured. If you insure property for 60% of what it would cost to replace, the insurer may pay 60% of each valid claim.
Quantity surveyors describe the same calculation used on building claims. The sum insured is divided by the value at risk, meaning the cost of reinstating the building at prices on the date of the damage, and the result is multiplied by the repair estimate (Dr Deen Letchmiah, President of the SACQSP, 2022).
Average is a condition in the policy, not an automatic rule, so check your wording to see whether and how it applies. Our explainer on what the sum insured means on your schedule covers where to find it.
The part that catches most people out is what happens on a smaller claim.
Average applies to partial losses too
Underinsurance isn’t only a problem if the house burns down: a policy with average can reduce a burst-pipe or burglary claim in the same proportion. Many people assume that as long as the damage is less than the sum insured, the claim will be paid in full. With average, that isn’t how it works.
| Damage | Within the sum insured? | Possible payout with average | Shortfall you carry |
|---|---|---|---|
| R50,000 (ceiling and floors after a burst pipe) | Yes | R30,000 | R20,000 |
| R200,000 (storm damage to the roof) | Yes | R120,000 | R80,000 |
| R500,000 (fire in part of the house) | Yes | R300,000 | R200,000 |
| R1,000,000 (total loss) | No | R600,000 (the sum insured) | R400,000 |
The excess comes off on top of the reduction. On every line, the payout is 60% of the loss because the home was insured for 60% of its value. What that looks like in a real claim is easier to see from a published case.
What it looked like in a real fire claim
In a 2025 FAIS Ombud case, a home insured for R2.08 million needed R3.53 million to rebuild, and a fire claim was paid at R1.17 million after average. The policy had been taken out in 2018. After the policyholder died, his widow took it over, and the house was damaged by fire in August 2023.
- Sum insured: R2,084,167
- Required cover (value at risk): R3,529,806.94
- Paid after the average clause: R1,171,066.07
She complained that the underinsurance risk had never been explained and that the cover hadn’t been properly reviewed each year. The FAIS Ombud found that underinsurance and the average clause were material information that should have been disclosed and recorded. The financial services provider couldn’t produce records showing those discussions or reviews (FAIS Ombud, FAIS-73058-24/25 NC 2, June 2025).
The Office couldn’t establish that she would have insured for more if she had been warned, so the provider wasn’t held liable for the full shortfall. It offered R50,000, which she accepted in full and final settlement. Even when an adviser falls short, compensation may be a fraction of the gap.
For a building, the hardest figure to get right is what it would cost to rebuild.
Buildings: insure the rebuild cost, not the market value
Your buildings sum insured should reflect what it would cost to demolish, clear and rebuild your home today. That figure can be very different from what the house would sell for.
- Land isn’t part of it. The market value of a property includes the land, which a fire or storm doesn’t destroy. In some areas the selling price is far above the rebuild cost. In others, rebuilding costs more than the house would sell for.
- It’s more than bricks and labour. The SACQSP article notes that reinstatement costs include demolition and all the professional fees required, and that the insured value should make provision for building cost escalation.
- Renovations count. A new room, a lapa, solar panels or a new kitchen can all add to the rebuild cost and may need to be added to the sum insured.
Building costs have also been rising faster than general prices. Stats SA’s construction input price index, which tracks the materials the construction industry buys, was 8.3% higher in August 2026 than a year earlier (Stats SA, P0151.1, August 2026). Headline consumer inflation was 4.2% (Stats SA CPI, August 2026).
A quantity surveyor or a professional building valuation is the most reliable way to set the figure, especially for a larger or older home. If you live in a sectional title scheme, the body corporate insures the building. Our sectional title guide explains how average can still affect an individual unit.
Contents are a different problem: the risk there is usually forgetting what you own.
Contents: what it would cost to replace everything today
Your contents sum insured should be what it would cost to replace everything you own at today’s prices, not what you paid for it or what it would sell for second-hand. The NFO says underinsurance happens when contents aren’t insured for their “full, up-to-date replacement value” (NFO, February 2026).
Prices for many household goods haven’t risen much this year. Stats SA recorded furniture and furnishings 0.7% cheaper in August 2026 than a year earlier, and household textiles, appliances and equipment 1.8% cheaper. For contents, the gap usually comes from somewhere else:
- Things you’ve bought since you last checked. A new TV, a laptop, garden tools, a bicycle. Each one adds to what you’d need to replace.
- Things people forget to count. Clothing, linen, kitchenware, books and the contents of the garage and outbuildings add up quickly. Our home inventory checklist walks through it room by room.
- Things that go up in value. The NFO notes that jewellery may increase in value as the price of gold and precious gems rises, and that the sum insured should be updated to match.
Over-insuring isn’t the answer either. In a case the NFO published, a ring was insured for R155,000 and its valuation certificate said R125,000, but the insurer could replace the same ring for R59,030. The NFO accepted that the sum insured is the insurer’s maximum liability, not a guaranteed payout. The insurer settled at the replacement cost and refunded the difference in premium. The aim is an accurate figure, not the highest one.
You also have to prove what you lost. The NFO says the responsibility lies with the consumer to prove the value of items claimed, usually with proof of ownership or purchase. Photos, receipts and valuation certificates make a claim easier as well as helping you set the sum insured.
Average clause calculator: see how it could affect a claim
Enter your sum insured, what you estimate it would cost to replace everything today, and a claim amount. This shows the proportional calculation only. It isn’t a valuation, a claims assessment or advice on how much cover you need.
How to keep your sums insured close to the real figure
Underinsurance is easiest to fix before a claim, and the renewal letter is the natural reminder. At least 31 days before renewal, your insurer must send the renewal premium and prompt you to consider whether your cover is still right for you (Policyholder Protection Rule 11.6.5).
Review the figures at every renewal
Check the buildings and contents sums insured, not just the premium. The NFO calls regular reviews of the sum insured “essential” to keep it in line with rising replacement costs.
Update after renovations and big purchases
Tell your broker or insurer about extensions, new fixtures, solar installations and valuable new items when they happen, rather than waiting for renewal.
Get the rebuild figure properly assessed
For a buildings policy, ask how the sum insured was set and whether a professional valuation would be worthwhile. Ask whether the figure allows for demolition, professional fees and cost increases.
List valuables separately, with current valuations
Ask whether jewellery, art and other high-value items should be listed individually on your schedule, and keep their valuation certificates up to date.
Tip: a phone video of every room, saved off-site, is a quick start on an inventory.Underinsurance and average FAQs
General answers about underinsurance and the average clause in South Africa. Your policy schedule and wording decide how your cover works.
What is the average clause in household insurance?
It’s a policy condition that reduces a claim in proportion when the property is insured for less than it would cost to replace. If you’re insured for 60% of the replacement value, the insurer may pay 60% of a valid claim, before the excess. Whether and how it applies depends on your policy wording.
Does average apply if my claim is smaller than the sum insured?
It can. Average looks at the sum insured compared with the full replacement value, not at the size of the claim. A R50,000 claim on a home insured for 60% of its value may be paid at R30,000.
How do I work out my buildings sum insured?
Use the cost of demolishing, clearing and rebuilding your home today, including professional fees, not the market value. The market value includes land, which isn’t destroyed in a fire or storm. A quantity surveyor or professional building valuation gives the most reliable figure.
How do I work out my contents sum insured?
Add up what it would cost to replace everything you own at today’s prices, room by room, including clothing, linen, kitchenware and the contents of outbuildings. List high-value items such as jewellery separately with current valuations.
Will I get more if I over-insure?
No. The sum insured is the most the insurer will pay, not a guaranteed amount. In a case published by the NFO, a ring insured for R155,000 was settled at its R59,030 replacement cost, with the extra premium refunded.
How often should I review my sums insured?
At least at every renewal, and whenever you renovate, extend or buy something valuable. Your insurer must prompt you at renewal to consider whether your cover is still right for you.
Can I complain if I wasn’t told about the average clause?
Yes. A complaint about an insurer’s claim decision can go to the National Financial Ombud Scheme. A complaint about the advice you received from a financial services provider goes to the FAIS Ombud. In a 2025 case, the FAIS Ombud found that underinsurance and average should have been disclosed and recorded.
What does underinsured mean?
You’re underinsured when your sum insured is lower than the value the policy says it should reflect, such as the cost to rebuild your home or replace your contents today. If the policy has an average clause, the insurer can reduce a claim in proportion to the shortfall.
Check your sums insured before you need to claim
Questions about your buildings or contents sums insured? Contact Best Care. Cover remains subject to underwriting and the final policy documents.
This article is general education, not personal financial advice. Whether average applies, and how, depends on each insurer’s policy wording. The examples and calculator are illustrations, not valuations or claims assessments. Statistics and rule references are as at the dates shown. Ombud cases are summarised for context and do not predict the outcome of any claim. Best Care Insurance Brokers CC, registration 1992/100995/23, Authorised FSP 8754. See the FAIS disclosure.