1.8. Mark has a cottage in his backyard. He uses the cottage as a study and his son in varsity, stays in of the cottage rooms when he visits over weekends and holidays. Mark insured the cottage for R300 000, however, it would cost approximately R550 000 to rebuild it. Mark does not want to insure it for that much as he can not afford the premium at the higher amount. During a recent storm, the cottage suffered damages of R50 000 . Choose the correct statement. A. Mark will be able to claim R87 500 B. Mark will be able to claim R50 000 C. Mark will be able to claim R27 272 D. Mark will be able to claim R300 000 E. None of the above

When it comes to insurance claims, underinsurance can lead to significant penalties! Since Mark has insured the cottage for R300,000 but it actually costs R550,000 to rebuild, he’s facing a case of underinsurance. In this scenario, the claim will be reduced according to the ratio of the amount insured to the reconstruction cost. So, with damages of R50,000, he will only be able to claim R27,272 after applying the underinsurance penalty. It's important for homeowners to regularly reassess their insurance coverage to ensure they're not caught in a sticky situation like Mark's! If he had adjusted his coverage when he realized the replacement cost increased, he might have avoided a substantial reduction in his claim. Keeping an updated valuation can save a lot of heartache when disaster strikes!