Are You Underinsured?
Published: 23 June 2011
By Julian Stone Leave a Comment
Updated: 25 January 2013
Buildings and contents insurance protects your home against burglary and disaster, yet a recent study found that a quarter of households underestimate the value of their possessions – leaving 6.8 million homes underinsured. Is yours one of them?
The insurance industry has changed for ever, thanks to the boom in online price comparison sites — fuelled by ever-growing numbers of cost conscious consumers.
One outcome has been a rise in households opting for cheaper home insurance from online providers.
You may have done just that. But just how well does it protect you?
If you’re haven’t checked your policies recently, it might be a good idea to make sure that yours isn’t one of the 6.8 million underinsured homes in the UK.
Because if you don’t, you may not find out you’re underinsured until it’s time to make a claim — and by then it will be too late.
So make sure you’re properly covered. Ask yourself these questions to make sure your insurance is not only good value, but that it gives you the cover needed for full peace of mind.
1. Are there valuable items you’re taking for granted?
When you take out home insurance, you normally think to cover high value items such as valuable jewellery, heirlooms and expensive electronics. But what about things like carpets, curtains, your wardrobe and even children’s toys?
Items like these can easily add up in value and become expensive to replace if they’re not covered. Ask yourself how much it would really cost to replace them, and choose insurance that properly covers their cost.
In addition, make sure you aren’t undervaluing your high value items . Get possessions like these professionally valued and if you’re concerned that you may not be fully covered by a standard home insurance speak to an insurance broker about a bespoke high net worth insurance policy.
2. Have you inherited anything?
If you’ve inherited anything recently, make sure you update your insurance to cover it.
Items like jewellery, watches and antiques can become even more valuable over time, so it’s important to identify their actual value or you won’t be able to claim the full amount when you need to.
3. Are you overlooking valuable items?
Do you have an attic strewn with dust-covered paraphernalia that’s been sitting there for decades? If so, then take your lead from the daytime TV shows and check there are no potentially valuable items you didn’t know about.
Look for things like books – especially first editions – cutlery, fine bone china, jewels, art and even more modern gadgets, perhaps early games consoles for example.
4. Does your insurance list a maximum payout for individual items?
Some insurance policies cap the amount they pay out for a single item — and it could be as low as £1,000.
If you have individual high value items, like jewellery or works of art that are worth more than this, you’ll need to make sure that you have a policy that takes account of this.
5. Do you know how your insurer defines buildings and contents insurance?
It may seem strange, but not every insurer uses the same definition for what ‘buildings and contents’ insurance actually covers and certainly they apply different limit levels on different parts of the cover e.g. freezer contents and pedal bikes may or may not be included as part of standard contents insurance. If they are covered, insurers will invariably set different limits of cover.
When considering the level of buildings cover you need, remember you only need to cover the rebuild cost.
This is not the same as the market value of the property which takes into account other factors beyond the building itself e.g. value of the land it is on.
Make sure you properly assess your property and the true value to rebuild it. The values you come to will be very different for example if you live in a modern building compared with a very old, listed building.
6. Are you covered for natural disasters?
Most home insurance policies cover for natural disasters but there may be issue if for example you live in a known flood risk area.
If you do live in what insurers consider a high risk area, you may not be able to get the cover you need through standard home insurance policies and will need to search harder to get an appropriate policy or engage the help of an insurance broker.
7. Don’t forget the Average condition
If your sums insured are not high enough, should you make a claim, you could come unstuck with the Average condition.
This basically means that the amount paid by your insurer in the event of a partial loss is reduced in direct proportion to your underinsurance. To illustrate this.
If your buildings are valued at £400,000 for insurance purposes, but you insure them for £200,000, in the event of a loss, only 50% of your claim will be paid, e.g. if you make a claim for £50,000, the insurer will only pay £25,000.
As far as the insurer and payment of the claim is concerned, it’s irrelevant that the total value of your claim is less than £200,000.
The application of the Average condition only applies for a partial loss. However, if you do suffer a total loss, bear in mind the maximum the insurer will pay is the sum insured. Consequently, if you have set this lower than the current rebuild cost, your claim payment won’t meet this in full.
Pleading that your underinsurance was not intentional won’t make any difference in respect of the Average condition applying. Another important reason to ensure you regularly review your insurance to ensure you aren’t inadvertently underinsured.
8. Have you reviewed your home insurance policy in the last 2 years?
We recommend taking the time to review your home insurance regularly – it really will help ensure you do have the level of cover in place that you need.
So, are you underinsured?
Hopefully not if you take into account all the above!
And remember, in the contest between better coverage and lower premiums, the best home insurance is the policy that provides you with the level of cover you need to meet your requirements and means that you have appropriate cover in place should you need to make a claim.
Being underinsured will invariably cause you problems if you need to make a claim. So don’t risk it — if you need advice speak to an insurance broker.