Under-insurance is when the amount of insurance cover you have is less than the actual value of what it is you are insuring.
Most commonly, under-insurance occurs in relation to household contents and business stock insurance.
How can under-insurance affect you?
If you needed to make a claim and you were under-insured your insurer may void the policy completely by refunding any premiums paid.
Another alternative is that your insurer provides you with what is known as a ‘reduced pay-out’. Insurance policies often include an ‘average clause’, this means that your insurer can decrease the liability for a claim by applying a comparable settlement.
An example of under-insurance
To give an example of under-insurance, if the value of your contents added up to £125,000 but your home insurance policy only covered you for £75,000 you would be under-insured. This would mean that if you needed to make a claim for damages worth £20,000, due to being under-insured, your insurer may only pay out £12,000 (60%), leaving you to pay the remaining £8,000.
How can you avoid under-insurance?
When receiving an insurance quote, your provider will ask you for the cost of replacing the contents of a property or business premises and/or the cost to rebuild it. It is crucial that this figure is as accurate as possible, as in many cases this is what the insurer will rely on when placing the policy as it is not always feasible to carry out a site visit.
Our top five tips on avoiding under-insurance:
- Do not rely on the market value of your property, block of flats or premises and if possible, try to get your property professionally valued. In 2016, over 80% of properties valuated by Questgates were under-insured.
- Check to see what is automatically covered by your insurance policy and what is not.
- Home and contents insurance calculators are available online as a guide and are a really helpful tool to get an estimation of the costs of your assets, however it is important to check this estimation carefully.
- Possessions, such as jewellery, can grow in value over time so be sure to review your policies annually and inform your insurer if there are any significant changes.
- For businesses, you should also consider other costs that would arise, such as the price of clearing and transporting damaged stock or any rental costs that could be incurred as well as any seasonal increases.
Lansdown Insurance Brokers are specialists in Block of flats insurance, Personal insurance and Business insurance. We are able to provide flexible policies to suit individual client needs and provide advice on what cover is needed. For more information call the team on 01242 524498.