Did you know?
Recent research has identified that 20% of homes are under insured in the UK, with that figure rising to an astonishing 75% for the homes of high-net-worth individuals.
What is underinsurance?
Underinsurance is an all-too common occurrence that happens when your insurance policy does not adequately cover the property and contents you are insuring. Underinsurance can happen for a number of reasons:
- When you don’t take into account price rises/increased value of your assets, e.g. your home, your jewellery or art
- When you undervalue your possessions in order to obtain cheaper premiums
- When you assume you have sufficient cover on existing policies and don’t take advice at the time of renewal
What are the risks of underinsurance?
Being underinsured can cause real problems in the event of an insurance claim. When you are underinsured, a clause called ‘average’ applies to most property insurance policies. It combats underinsurance by ensuring everyone should pay the correct amount for the correct level of insurance cover they require. In simple terms, it is a percentage and therefore if you only insure for 50% of the required insurance only 50% of the claim will be payable after the policy excess being deducted. This means you could end up not receiving a full settlement and could be left severely out of pocket.
How to correctly calculate your buildings insurance
Most property insurance policies are based on so-called ‘reinstatement’ cover and therefore covered for the cost of rebuilding or reinstating the property. All permanent fixtures such as fitted kitchens and bathrooms, fitted units and solid floors are all buildings and should be adequately covered in the buildings sum insured. The Association of British Insurers (ABI) offers a useful free online calculator.
The ‘rebuild cost’ part of your property insurance is for the possibility of a total loss (e.g. destruction through fire) and in addition to the building of the new property you must also factor in the following to ensure you’re not underinsured:
- Clearing the property of debris
- Possible supporting of neighbouring properties/structures (i.e. for mid-terraced properties)
- Architect’s and surveyor’s fees
- Scaffolding and site security
- Possible increase in costs that could include difficult access for hard to get to properties or restricted access for properties on main roads where temporary traffic lights may be required
How to correctly calculate home contents insurance
Unlike buildings sum insured, there are no online calculators for evaluating home contents insurance and it is best to write down all your contents and their value to accurately calculate this figure. When doing this it’s important to:
- Make sure you include all contents including freestanding items (e.g. freestanding appliances and furniture), personal Items (day-to-day items of clothing, utensils, and collections), electricals, rugs, carpets etc.
- Break things down room by room – this will help you avoid missing items
- Include items in outbuildings such as the garage (not including any cars)
- Make sure you calculate your contents value based on the new and full value (not the current value) of your items, even for items received that you have received as gifts or items purchased in a sale
- Total up all the items you have listed and consider that your contents value
What can you do?
When taking out property insurance cover, it is every policyholder’s obligation to request the correct level of cover, whether it is buildings insurance cover, contents insurance or stock insurance. If you have any concerns over the current level of insurance speak to a local broker like Coversure. Insurance brokers cannot recommend levels of cover but we can provide advice on what to consider when working out the level of cover you need. To get some free, independent advice, contact your local Coversure office by clicking here now.