A guide to underinsurance

What is underinsurance?

Being insured correctly is almost as important as having the cover in the first place. Without the adequate cover, you could find yourself being left short in the event of a claim or even with no payment at all. Underinsurance can happen with both your buildings and your contents, so it is important to be aware of both.

For example, if your home would cost £500,000 to rebuild and your policy only insures you for £250,000, then you are 50% underinsured. If you submit a claim for £10,000 damage to your home, you are at risk of only being paid out £5,000. If an insurer thinks you are deliberately underinsuring, they may refuse the claim in its entirety.

Although it can come at a slightly higher premium, insuring correctly will give you the peace of mind that your policy will cover you to replace what matters the most, no matter what the damage is.

How do I know if I’m underinsured for buildings?

The best way to find out if you are insuring for the right amount is to get a professional survey. As your insurance broker, we have the experience and knowledge to identify a property that might be underinsured, but we don’t have the qualifications to calculate a correct figure. A professional surveyor can help you with that part – then we can do the rest!

Ask your dedicated account handler for our recommended surveyors or if you are new to us, our new business team can point you in the right direction.

We also have a team of account executives who can offer their expert knowledge or a visit at no cost to you to give advice.

How do I know if I’m underinsured for contents?

Firstly, make sure you know your policy limits and sections. Most policies have single item limits, which means you must tell your insurer about any items over a certain value so they can be specified on your policy. The different policy sections and item limits will be stated in your policy wording or on your policy schedule.

For example, if your insurers single item limit for jewellery is £5,000 and you have a necklace worth £10,000 and don’t tell us about it, you may only be paid up to £5,000 if you lose or damage the item.

The best way to calculate an overall figure for your contents is to add everything up room by room. We can provide an inventory form to help with this – just get in touch with your handler or our new business team!

How do I correctly insure my contents?

Imagine taking the roof off your house, picking it up and turning it upside down. Everything that would fall out needs to be insured as contents, including things like carpets, curtains and white goods that aren’t fixed.

If your insurer covers on a new for old basis, in the event of a claim the item will be replaced as brand new. This means you must insure for the current value of your belongings, not what you may have paid for them or the price of them second hand. For items of fine art or jewellery and watches, you must insure for the current market value.

You should regularly undertake a review of your sums insured to allow for any new purchases or changes in values.

Is rebuild cost the same as market value?

Rebuild cost and market value are two very different things, especially with listed properties.

A rebuild cost is the amount it would cost to completely rebuild the property from the ground up including foundations, labour, and materials. For listed buildings, this is often much higher as the property needs to be rebuilt to replicate its original state and often requires different techniques and much more expensive/harder to source materials.

The market value of your property is influenced by geographical factors such as local schools, demand and location which are not things that are taken into account with the rebuild figure.

The rebuild figure of your property could be much higher or much lower than the market value depending on these things, so it is important to get the advice of a professional and not just use the market value.

Top underinsurance tips:

• Make your insurer aware of any new purchases so your contents sum insured can be kept up to date.
• Make your insurer aware of any buildings works that might increase the rebuild figure i.e. adding sheds, summer houses and garages.
• Keep receipts and valuations for your most expensive belongings.
• Keep the rebuild surveys up – although we will increase your rebuild accordingly each year, most insurers recommend a survey every 5 or so years to check it remains accurate.

Is this just my insurer trying to make more money?

Although many people think this is the case, it certainly isn’t. We are your broker so we are working on your side, and we wouldn’t recommend something that wouldn’t benefit you.

If we do need to increase your rebuild or contents figures, it is likely that you will see an increase in your premium but making sure you are insured correctly is in your best interest, not the insurers. As underinsurance can lead to claims being paid either inadequately or not at all, this would put you in a worse position than the insurer.

In most cases, professional surveyors don’t work for insurers, so cannot be influenced by them. They are solely used to give their professional advice and calculate the correct figure.

As your broker, we aim to get you the most competitive and affordable premium so we will do what we can to make sure of this, all whilst making sure you are insured correctly.

It’s so important to make sure your policy is ready to cover you when you need it the most – so if you think you might be underinsured, get in touch!

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