Average in terms of your short-term insurance policy is applied when your sum insured on household contents is less than the replacement value of your property.
Your policy is based on “new” for “old” and therefore the sum insured must be equivalent to the replacement value of the insured property at the time of loss or damage. If not, your Insurer will only be liable for that portion of the loss or damage that the sum insured bears to the replacement value of the insured property.
If you bought an item a couple of years ago at say an amount of R5 000 and it gets lost or damaged, the current replacement cost for an identical or similar item, at today’s cost will exceed the original cost.
Example: Your sum insured is R500 000, but the value at risk to replace all your property would cost R1 000 000. You suffer a loss in the amount of R100 000. Your Insurer would apply average to the loss by dividing R1 000 000 into the sum insured, multiplied by the loss. In this instance your Insurer will pay you only R50 000.
To ensurethat you are fully compensated for a loss or damage, your sum insured must be adequate.