Is Your Home Underinsured?
October 3, 2018
It has been estimated that more than three-quarters of insured buildings in the UK have inaccurate or inadequate sums insured.
If your home insurance policy does not reflect the true value of your buildings and/or contents, any claim you make against this policy may not be settled at an amount to cover your loss. This has the potential of making a very stressful and worrying experience much worse.
Did you know?
- Many individuals regularly underestimate their sums insured by at least 50%.*
- Since 2001, the price of gold and silver has increased by around 300%.**
*Claims for High Net Worth customers who had contents, buildings and jewellery valuation during 2016 (Aviva, 2016).
Where you do not insure for the full value, your insurer can reduce any claim made via the level of your underinsurance. This is commonly known as ‘the average clause’ and could end up costing you a significant amount of money despite thinking you have insurance cover.
This is how the ‘average clause’ could affect you;
- Your current policy provides you with £50,000 of cover
- The actual true value needed to cover your contents is £100,000 (therefore you are only insured for 50% of the true value)
- An example of a common claim: escape of water/burst pipe causes damage to your property and you claim for £20,000 of damage. As you are underinsured it is likely that your insurer may only pay out 50% £10,000 – you are now £10,000 worse off even though you do have insurance cover.
The very worst that could happen in this event is that the insurance company (although unlikely) could void the policy completely and pay you nothing. This is based on the declaration that you are insuring your property for its full value.
Example: After encouraging my client to carry out a full contents review over a 12 month period it was established that their General Contents have increased from £220,000 to £395,000. This meant that they were massively underinsured.
And its not just your home contents that could be underinsured.
Statistics tell us that it is becoming increasingly common for your home itself to be underinsured in that the re-build value is insufficient.
Furthermore, if you undertake home improvements – whether it be a small extension or a complete renovation – you really should consider having the rebuild costs reviewed.
Example: Following some recent building works, I arranged an appraisal for a client’s home. The appraisal found that the rebuild costs had increased from £1,028,555 to £1,744,700 – again significantly underinsured.
You may not think to tell your insurance provider about your new kitchen or extension – but unless you do so, it is very easy to find yourself underinsured. Failure to inform your insurer of any works you are undertaking may also invalidate your cover.
Research consistently shows that millions of homes in the UK are underinsured. The home insurance team at FOCUS don’t want your home to be one of them. This is why we would urge you to regularly check the level of cover you currently have.
Whilst the policies that FOCUS arrange have index-linking attached to them, they cannot allow for purchases that you make throughout the year. Another factor to consider regarding underinsurance is the fluctuations and changes in value to valuables, paintings and antiques.
Find out if you are underinsured
Many of our clients have been very surprised once they have completed our easy to use contents inventory calculator to find how underinsured they have become. Please don’t fall victim to this easily overlooked aspect of your insurance cover. The consequences of not arranging the cover correctly can be devastating.
Please feel free to call to discuss your current arrangements.