What Is the Average Formula in Home Insurance? (South Africa Guide)

Quick Summary

The average formula is used by insurers when you’re underinsured. You only get a portion of every claim. You pay the rest yourself.

Example: If you’re 30% underinsured, you only get 70% of every claim. You pay the rest yourself.

How to avoid it: Keep your sum insured accurate. Update yearly. Include all additions like solar panels, pools, and security systems.

You claimed R50,000 for storm damage. Your insurer approved it. Then paid you R25,000.

Why only half? The average formula. You were 50% underinsured, so you got 50% of your claim.

This happens to thousands of South Africans every year. Let’s make sure it doesn’t happen to you.

What Is the Average Formula?

The average formula is a calculation insurers use when your sum insured is lower than your home’s actual rebuild cost. It reduces your payout on every claim proportionally.

Simple version: If you’re 40% underinsured, your insurer pays 60% of every claim. You cover the 40% gap.

The formula: (Your sum insured ÷ actual rebuild cost) × claim amount = payout

This applies to every claim. Small repairs. Big damage. Total loss. Every time.

How Does the Average Formula Work?

Your home costs R1.5 million to rebuild. You insured it for R1 million. You’re 33% underinsured.

A hailstorm damages your roof. Repair cost: R60,000.

Formula: (R1 million ÷ R1.5 million) × R60,000 = R40,000

Your payout: R40,000. You pay: R20,000.

This happens on every future claim:
Geyser bursts: R15,000 repair → You get R10,000, pay R5,000
Kitchen fire: R200,000 repair → You get R133,333, pay R66,667

The penalty applies every time until you fix your sum insured.

Real Examples: How Much You Lose

Underinsured By	Claim Amount	You Get Paid	You Pay Yourself
10%	R100,000	R90,000	R10,000
20%	R100,000	R80,000	R20,000
30%	R100,000	R70,000	R30,000
50%	R100,000	R50,000	R50,000

According to Santam, 1 in 3 SA homes are underinsured by up to 30%. On a R100,000 claim, they lose R20,000-R30,000.

Why Do Insurers Use the Average Formula?

Your premium is calculated based on your sum insured. If you insure for R1 million but need R2 million to rebuild, you’ve been paying half the premium you should have.

The average formula adjusts payouts to match the premiums paid. It maintains fairness between customers who insure correctly and those who don’t.

It’s standard across all South African insurers and written into your policy documents.

How to Avoid the Average Formula Penalty

Get Your Rebuild Cost Right

Use an online calculator or get a professional valuation for high-value homes (over R2 million). Don’t guess or use market value.
Read our complete guide on how to calculate your sum insured

Include Everything

Your sum insured must cover:

• Main dwelling and all outbuildings (garage, shed, storeroom)
• Swimming pool and surrounding deck
• Boundary walls, gates, and gate motors
• Paving, driveways, and pathways
• Solar panels, inverters, batteries (R150,000 to R300,000+)
• Security systems: electric fencing, alarms, cameras, burglar bars (R100,000 to R200,000+)
• Retaining walls (expensive if your property has slopes)
• Demolition costs and professional fees (architects, engineers)

Learn what SA-specific factors affect your sum insured

Update Every Year

Building costs increase annually. What cost R800,000 to rebuild in 2020 costs R1.2 million+ today.
Update your sum insured at every renewal. Set a reminder.

Update After Renovations

Added a deck, garage, or solar panels? Renovated your kitchen? Update your sum insured immediately. Don’t wait for renewal.

Add a 10-15% Buffer

Building costs can spike unexpectedly after disasters. Material shortages and contractor demand drive up prices.
Add 10-15% above your calculated rebuild cost as protection against cost volatility and unexpected expenses.

Frequently Asked Questions

Does the average formula apply to contents insurance too?

Yes. If your contents sum insured is lower than the replacement value, the average formula applies to contents claims the same way.

Can I negotiate with my insurer if they apply the average formula?

No. The average formula is a standard policy term. If you’re underinsured, it applies automatically. Ensure your sum insured is accurate from the start.

What if I can’t afford to insure for the full rebuild cost?

Don’t lower your sum insured to save premiums. Rather, increase your excess (the first amount you pay on claims) to lower your premium without making yourself underinsured.

How do I know if my current sum insured is accurate?

Compare your sum insured to your home’s current rebuild cost using an online calculator or professional valuation. If there’s a gap, contact your insurer immediately.

Does my insurer check if I’m underinsured before I claim?

Not usually. Most insurers only discover underinsurance when you claim, and they send an assessor to evaluate the damage. That’s when the average formula gets applied. It’s your responsibility to set the correct sum insured upfront, not your insurer’s.

Protect Yourself From the Average Formula

Get your sum insured right. Update it yearly. Include everything.

With 21+ years and 197,000+ claims paid, we help South Africans get their cover right from the start.

Get a Quote | Speak to a Consultant

Related Articles

• Sum Insured Explained: What Every South African Homeowner Must Know
• How to Calculate Your Sum Insured: 3 Methods for SA Homes
• Load Shedding, Security & Sum Insured: SA Factors You Can’t Ignore
• Sum Insured Mistakes: 7 Ways South African Homeowners Get It Wrong

About oobainsure: With 21+ years of experience, we’ve paid 197,000+ claims, delivered R1.2 billion+ to customers, and earned a 9.5/10 TrustIndex rating on Hellopeter. We insure 200,000+ South Africans who trust us with what matters most. Protection you understand.