Under insuring your home and possessions may seem a reasonably sensible cost-cutting measure as a lower level of cover usually means lower premiums, but it can lead to major problems when it comes to making a claim.
You might not get the full value of the items you’re claiming for, or they could be replaced with cheaper, more inferior versions.
Insurers can take a dim view of under-insurance
The insurer may decide that your premiums should have been higher, as you’ve in fact been a greater risk than you’ve claimed to be, and therefore will reduce any claim you make, leaving you to stump up much more than you would like.
Or an insurer might decide that the under-insurance is so great it constitutes a lack of ‘due diligence’ on your part (i.e. you weren’t totally honest when you took out your home cover), which could invalidate the whole policy and you won’t be able to claim at all.
In a worst case scenario, your home could be completely destroyed and you might not be able to afford to re-build it as you under-estimated how much it would cost to do so when you took out your cover.
An example of potential problems caused by under-insurance
Let’s say you go holiday and come back to find your home has been burgled to a serious extent, and you’ve lost around £10,000 worth of possessions.
The insurer will take into account the things that were stolen, but quite possibly also the things that weren’t. In other words, they will make an assessment of the total value of your possessions and compare this to the figure you gave when you took out your cover.
Now, let’s say you estimated your home’s contents to be £25,000 when you took out your cover. But if the insurer decides this figure should in fact have been £50,000, which is 50% higher than your figure, it could then decide to reduce the £10,000 burglary claim by 50%.
You would then have to decide whether to make up the £5,000 shortfall yourself, or simply own fewer things.
It might not seem fair, but there are many insurers who would take this stance (the argument being you’re your premiums should possibly been higher and you have misled them, knowingly or unknowingly).
With this in mind, it’s clearly best not to under-insure your home and its contents. Here are five ways to make sure you don’t:
- Value your possessions accurately
You should go through your home room by room and make a list of how much everything in it would cost to replace. Be methodical, and if you’re not sure of something’s worth, get it valued.
Don’t forget, an item’s value for insurance purposes is how much it would cost to buy new, not its second hand value (apart from with the cheapest policies, cover is nearly always on a ‘new for old’ basis).
- Estimate re-building costs as accurately as possible
As shown above, it’s vital to estimate the cost of re-building your home from scratch.
Don’t forget that this is the cost of having it totally reconstructed, and not the price you could get for it if you sold up. And make sure you include all outbuildings and garden walls.
If you’re not sure, ask a trusted local builder to make an estimate, or hire a chartered surveyor.
The Royal Institute of Chartered Surveyors (RICS) has a Building Costs Information Service that has a very useful, free-to-use, cost-assessment calculator.
- What to include
Many people commonly forget to include certain items in their calculations when valuing their home and its contents.
It’s easy to forget that when it comes to the buildings insurance element, fitted bathrooms, kitchens and wardrobes will need ‘re-building’ as well as the structure, or ‘shell’, of the property.
And with possessions, don’t forget carpets (these are included as ‘possessions’, and often cost thousands to replace), cookers, fridges and other white goods, curtains and curtain poles, along with the more obvious items such as antiques, mirrors, electronic goods, jewellery, musical instruments and clothing.
Another common mistake is to forget to include garden furniture such as pagodas, tables and loungers, and garden features such as sculptures, fountains and other decorative items.
Some items increase in value without the owners really being aware of it.
The price of precious stones as well as gold, silver and other precious metals has rocketed in the last couple of decades. If you haven’t re-assessed your home cover, it could be that certain items of a higher value now exceed the single item claim limits on your policy.
Or, even if they don’t exceed the single claim limit, when added together, the total value of your possessions may be more than your maximum-allowed total claim limit.
- The wrong cover for the things you own
It may be the case that the type of policy you have means some of the things you own aren’t actually insured at all.
This could be due to certain exclusions which may apply as some of the things you own are too valuable or fragile, or attractive to thieves, to be covered in any way by your policy.
Very valuable one-off items may need separate cover completely, such as very expensive jewellery and highly valuable antiques.
Items which are very attractive to thieves may be excluded such as bicycles and smartphones, although this is usually only the case with cheaper, less comprehensive policies. If you want to make sure such items are included, you might need to pay for additional cover.