A view of roof tops on a street with he backdrop of an orange sunset

Are You Underinsured?

As the saying goes “there is no place like home”. It provides shelter, accommodation and protection for your family and possessions. Furthermore, it is an extension of your personality and status.

Every aspect of your life is reflected in your home. Each room filled with memories, necessities/essentials and precious possessions. Thus it is important that you have adequate insurance cover, should the worst happen.

Insurance cover offers peace of mind, whether you live in a 1 bedroomed flat or mansion on a country estate.

But what if there’s not enough cover in place to rebuild your home or replace your belongings?

Scary fact:

20% of UK households are underinsured. (The Association of British Insurers).

What is underinsurance?

In the event of an insured peril, there is not enough cover to rebuild the property or replace the contents.

The main causes of underinsurance:

• Not supplying accurate information or valuations when obtaining a quote.
• Not checking the policy carefully to ensure that it meets your needs.
• Focussing too much on the cost of the premium rather than on the levels of cover needed.
• Failure to carry out regular assessments and valuations.

Consequences of under insurance:

Discovering you are under insured is not only distressing at such a stressful time but it can be costly as well.

Simple example;

You have £50,000 of contents cover, yet the actual cost of replacing all your belongings is £100,000.

You unfortunately suffer a loss and make a claim for £30,000. Although your claim is for less than the insured amount, insurers apply average.

Average:
Insurers calculate the claim in proportion to the percentage of the under insurance.

Thus because you are 50% under insured they would only pay 50% of the amount claimed (less any excesses).

Which in this example would leave you out of pocket by £15,000 (+ excess)!

Under insurance is usually only discovered when making a claim; at which point it is far too late.

So what is the right level of cover?

Factors to take into consideration when calculating your sums insured:

Buildings

You need to insure the re-instatement value of the property in the event of a total loss and not the market value.

This should include costs associated with;
• The demolition of the existing structure
• Disposal of rubble
• Architects, surveyors, structural engineers charges
• Planning application fees
• Additional costs involved in getting to sites with limited accessibility

Include boundary walls/fences, driveways, outdoor swimming pools and tennis courts.

Is the building listed or of non-standard construction? (Listed or nonstandard properties need specialist tradesman and materials which cost more)

Need help?
You can get general guidance on rebuild costs at https://abi.bcis.co.uk/. Or you may consider having a full structural survey carried out.

Contents

Go through each room. Make a list of items and their approximate replacement cost as new.

It is more than the obvious items such as furniture, white goods and electronic equipment. You have books, CD’s, DVD’s, ornaments etc. There are your personal items such as jewellery and clothing.

Don’t forget the children’s toys. Plus those items stored out of sight in cupboards, the loft, garage and outbuildings.

Also be aware that carpets come under contents.

Review your sums insured:

When adding an extension or loft conversion. Additions to the structure will increase the reinstatement value. Upgrading kitchens or bathrooms with higher quality fittings and “mod cons” can also have an impact

Don’t forget, extensions to a property means more space. More space means more contents to fill it.

When there are changes in your domestic circumstances.
• Moving to a larger property
• A partner or elderly relative moving in
• Having or adopting a child
• Purchasing or receiving a high-value item
• Being left an inheritance

Take into account that antiques, jewellery and works of art by their very nature increase in value. You should also be aware that the death of an artist usually increases the item’s value. So have them appraised every 3 years.

Don’t put your home and belongings at risk.

If you don’t know what something is worth; find out.

Ignorance is not a defence for underinsurance.