The perils of under-insurance

There are usually two reasons why people are under insured… because they haven’t actually made time to check whether their current sum insured on their renewal schedule is actually adequate, or because they are deliberately under insuring believing in the theory that they will never have a large claim and they will save money by reduced premiums in the meantime.

By choosing to have insurance we are all putting our money into a pool, those that have more to lose in the event of claim put in more money, those that have less to lose put in less. That’s fair enough…

Unfortunately though those people that deliberately decide to be underinsured aren’t putting enough money in to the pool…

To combat this insurers have a term they call ‘average’. Should you be unlucky enough to have a claim at your property, the insurers may decide to appoint a loss adjuster to see you. Although you won't realise it at the time, they will be making sure that you have the correct sums insured. If you have not insured your home for the correct amount your insurance company are likely to reduce the amount of your claim accordingly. The amount of the claim reduction will be in direct proportion to the amount that you are under-insured by.

Thankfully most cases of under insurance aren’t deliberate. Each year prior to renewal you should undertake the exercise to ensure that your sums insured are adequate. There is a handy spread sheet that you can download on the link below.

A reinstatement value for your buildings maybe a little more tricky to ascertain though. Usually the building sum insured will come from the survey when you purchased the property. This would then have been index linked annually to ensure that it keeps in line with current building costs. To check your building sum insured you can visit www.abi.bcis.co.uk, who have a calculator which can provide a guide to make sure your current sum is in the right ball park.

If you are lucky enough to live in a large property, then you will probably need a specialist policy. These types of policy would normally include a free appraisal to make sure that both the buildings and the contents sums insured are adequate. Failure to check your current sums insured could leave you with a nasty surprise in the event of a claim.

To download a copy of our free contents insurance checklist, please click on the link...