Underinsurance – Buy Cheap, Buy Twice.

Posted on by Anthony Wakefield & Co

Customers who purchase insurance policies can become confused and frustrated if their claim is not met in full. A common misconception is that insurers are trying to save money whereas often the issue arises out of policyholders trying to save money with this common mistake.

Imagine that you insure your home for £500k, but to rebuild it following a fire, it would actually cost £750k. What happens then?

What is it?

Underinsurance is when the value at risk exceeds the sum insured. Basically, it is when you don’t have enough cover. It does not apply in every scenario but is particularly relevant to property insurance.

Where underinsurance can arise

So how much cover do you need? Well, this depends. If you are trying to insure the buildings of a house or other property, this is usually the cost to rebuild the structure plus an allowance for clearing the site following damage beyond repair and an allowance for professional fees for architects and surveyors. Buildings which are listed by Historic England, Historic Environment Scotland, Cadw or the Northern Ireland Environment Agency have unique requirements when repairs are required, and these involve the use of specialist techniques and materials which can increase the cost to reinstate.

If you are insuring your home or business contents, you will normally need to insure for the value to replace all the contents on a new for old basis. If your tv was damaged or stolen, you would expect to have it replaced with a new unit of similar specification.

For jewellery, values are often based on the opinion of a professional. For items such as rings and necklaces which can be remade if lost, stolen or damaged beyond repair, the value will be in the stones and metals used. For watches, there can be a waiting list, and this can push the value of limited-edition models way beyond the manufacturer’s recommended retail price. Where watches are purchased as an investment, it is important to insure for the value which could be otherwise lost where there is a difference between the retail price and the market value.

Reducing the risk

To ensure that you minimise the risk of underinsurance, you should review your policy on a regular basis. Most policies renew annually so it’s a good time to check that everything is still correct rather than just paying the renewal premium.

Furthermore, you should tell your insurer if something changes. If you purchase additional contents or stock, you might need to increase your cover during the policy term. Similarly, any building works or home improvements such as solar panels can increase the cost of rebuilding a property.

More information

For more information on how to get the correct insurance with us, please visit www.anthonywakefield.com or call us on 01306 740555.