- One in four UK households could be underinsured
- Amounts can be underestimated as many don't fully understand their insurance policies
- Regular reviews are crucial to ensure cover is suitable and up to date
Worryingly, according to the Association of British Insurers, one in four UK households do not have contents insurance and some under estimate their cover requirements resulting in claims being rejected or settlements proportionately reduced.
Here are some top tips to help avoid this common trap: -
- Understand the term “sum insured”
This is often misunderstood. When calculating your sum insured you need to remember that the figure you are insuring for must account for the cost to replace belongings on a new-for-old basis at the time of the loss NOT the original purchase price. In the case of buildings, the cost to fully rebuild the property in the event of a total loss.
It is particularly important to work out the figures correctly when insuring on a “specified sum insured” policy where you elect the exact amount to be insured. “Blanket cover” policies which provide standard limits such as £1,000,000 for buildings and £100,000 for contents tend to reduce the risk of under insurance as you only need to ensure that your property values do not exceed internal policy limit once you are satisfied that the overall limit is adequate.
- Inner policy limits
All policy wordings differ, so it is important to understand your policy in order not to be left inadequately covered.
Inner policy limits are especially significant. For example, many “blanket” policies will specify a limit for valuables and different insurers have differing definitions of “valuables”. It is extremely important to understand the terms and how your policy is worded to avoid certain items exceeding the inner policy limits. Only then can you make an informed decision on how to group and value items to determine an adequate sum insured and to ensure a policy meets your specific needs.
- Common underinsured items
Should you need to make a claim for items over a certain value, many insurers will request evidence of value, usually a professional valuation.
Typically, jewellery falls into this category and is an area where underinsurance is very common. Precious metals such as gold, silver and platinum can vary in price considerably from year to year. Heirlooms are often not valued professionally and when jewellery is purchased abroad purchase prices will often be much less than replacement costs in the UK.
It is therefore essential to realise the importance of keeping items correctly insured by reviewing values and obtaining regular valuations, many insurers will recommend these at least every five years.
- Regular reviews
You should reassess your insurance requirements at each renewal date and whenever you make new purchases. For example, as mentioned jewellery prices can rise, or a purchase of a laptop or other technological item may mean you have exceeded the inner limits of your policy wording if the definition of “valuables” includes audio electrical items.
Take some time to go through each room in your home to assess your belongings, many people are surprised at how much they have accrued over the years when completing this exercise.
If you are going through a major life event such as getting married or staring a family this is a crucial time to reassess your sum insured and policy wording to make sure everything is properly covered. Birthdays, Christmas and anniversaries are also times when large purchases are made.
It is also extremely important to review your buildings sum insured which should always be based on the current rebuilding cost NOT the market value. Professional valuations are worth consideration to avoid the pitfalls of underinsurance which can include claims being denied or proportionately reduced.
If you need assistance with calculating your correct sum insured, contact us and we will help to put you in touch with professionals who can assist.
For professional insurance advice
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