Property Underinsurance: Are You at Risk?

Property Underinsurance: Are You at Risk?

82% of Properties Are Underinsured*. Is Yours?

A recent report* has revealed the shocking statistic that 82% of UK properties are currently underinsured, which begs the question, is yours…?

In this new blog, we’ll look at the risks you face if your property is underinsured, what causes property underinsurance and how you can escape from this potentially costly trap.

Is Your Property Underinsured? Find Out Now!

According to a report by rebuildcostassessment.com, 9 out of 10 UK properties do not have the correct levels of insurance cover. 82% are underinsured, leaving their owners open to significant financial losses should they make a claim.

Why Are So Many UK Properties Underinsured?

There are several reasons why this problem occurs (see below) but, the outcome is always the same, the amount your insurer pays out in the event of a claim will be less than you need to cover your losses. By working on what’s known as the ‘average condition’, your insurer will reduce any claim payment proportionally by the underinsurance percentage. This can lead to losses of tens, even hundreds of thousands of pounds so making sure you have the correct level of cover in place is essential.

If you’re worried that you may be underinsured, contact your local Coversure office today.

Escape The Property Underinsurance – Follow These 3 Steps

While it’s easy to fall into the underinsurance trap, freeing yourself from it is just as straightforward. All you need to do is follow Coversure’s 3-step plan.

Property Underinsurance - Coversure's 3-Step Guide

Step 1: Contact your local Coversure office
Step 2: Get a virtual assessment of your property.
Step 3: Recieve a tailor-made property quotation.

It’s as simple as that. The whole process can be done in a matter of days and will give you one less thing to worry about. To take your first step on the road to adequate property protection, contact your local Coversure office today

Why Does Property Underinsurance Occur?

This troubling problem can occur for a number of reasons, one of the principal ones being an incorrect Reinstatement Value. This is a significant problem for landlords, commercial landlords and property investors and is at the root of the property underinsurance crisis we’re currently experiencing.

The Reinstatement Value Is Too Low – this isn’t the market value of the building, rather the amount it would cost to rebuild it. This includes construction costs, demolition and site clearance, architect’s and surveyor’s fees, planning charges, specialist tradesmen etc. Such fees can often be significantly higher than the market valuation of the property and based on the average condition clause in your policy, you could be left with a huge shortfall.

Home/Rental Property Contents Cover Is Too Low – while not as fundamental as the reinstatement issue, a shortfall in contents cover is common and can cost you dearly in the event of a claim. Many people – including landlords – forget to include things like curtains, carpets, and other fittings, all of which may need replacing in the event of a problem.

Business Contents Cover Is Too Low – most commercial landlord policies are worked out on a reinstatement basis (new for old) rather than an indemnity settlement (used/second hand) one. When it comes to commercial properties and businesses it’s important to make sure that your sum insured is sufficient to cover the cost of buying a new replacement and not the price you have paid or a second-hand value. Business contents routinely have their values written down on balance sheets and, this can lead to a shortfall in contents cover.

Business Interruption Indemnity Periods Are Too Short – business interruption cover – the cover that can pay out for a period should you be unable to trade – is often underestimated by business owners. The main reason for this is a lack of clear advice on how long a period they should have written into their policy. Unless you happen to be in construction or have been affected by a disaster that has forced you to close in the past, it’s unlikely that you will know quite how long it will take to get your premises refurbished after a flood or fire, how long it will take for essential services to be restored or how long rebuilding your customer base will take. This is one of those occasions where caution needs to be your watchword and where getting some specialist independent insurance advice is a must.

Property Underinsurance Case Study

Mr and Mrs Smith have owned a rental property in Nottingham for the past 10 years. The property’s rebuild value was assessed when they bought it and set at £250,000.

One day while the tenants are out at work, disaster strikes. A gas pipe ruptures; the gas ignites and the property is destroyed.

The Smiths start collecting quotes on rebuilding the property, gathering everything from demolition and surveyors’ fees to builders’ and decorators’ estimates. In total the sum comes to £500,000, and thanks to the pandemic and the disruption to supply chains, the work will take up to 18 months to complete.

As the Smiths were underinsured by 50%, the insurer is entitled to reduce any claim payment by the same amount. The total sum insured is £250,000, so they only receive £125,000 (50%) – leaving them to find £375,000 to rebuild their property.

In some circumstances, where the underinsurance is believed to be deliberate or reckless, the insurer may be entitled to void the policy altogether and pay nothing.

Had Mr and Mrs Smith followed Coversure’s 3-step plan, they could have saved themselves a lot of heartache and significant financial losses.

Escape The Property Underinsurance Trap

As you can see, property underinsurance is a serious problem, one that could leave you facing huge bills should disaster strike your property. To find out if you’ve fallen foul of it and to take steps to escape it, contact Coversure today. With 90 offices throughout the UK, friendly, independent advice is never far from home. To find your local office, please use the Coversure office finder.

*source: Data insights 2019 report by rebuildcostassessment.com

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