What Happens if You're Under Insured?

What happens if I am under insured?

It’s important to insure your property fully, as if you make a claim and are under insured, you will not be entitled to the full pay-out amount. The settlement for a claim on an under insured property will be reduced in line with the actual sum insured, and you will therefore have to cover the remaining cost of the loss or damage yourself.

Broken piggy bank

The impacts of being under insured

Recent research indicates that nearly 7 million households in Britain are underestimating the value of their home contents, and as many as one in five have no contents cover at all. These worrying statistics show that a massive £200 billion worth of our home contents is left exposed. If your insurer discovers that your home contents are worth more than they are insured for, you will only be paid a relative proportion of your claim. In some cases, severe underestimations could even cause an insurer to refuse to pay out completely.

Overlooking items

Problems occur when homeowners overlook items, often missing out entire categories in a given estimate, purely because the scope is so vast. You might look around your room, listing the items you can see and calculating their value, but neglect to include curtains and carpets. Common items that people forget about include fixtures and furnishings, cookware and flooring. Items that are kept stored out of sight are also at particular risk of being forgotten, such as garden tools, luggage, linen, clothes, food and drink. You should make sure you account for absolutely everything when working out how much to insure for.

Getting your estimates right

When you consider that an average person's clothing alone could cost over £10,000 to replace, you can understand why it is important to get your estimates right. Often people make the mistake of including high-value items in their estimations, such as particularly valuable jewellery or antique art, only to find later that their policy did not cover anything with an individual worth over a certain amount. It is important to specify such items to your insurer, in case you need to obtain additional cover. It is also important to make certain you have high-value items appraised on a regular basis, adjusting your insurance to any growth in value.

Changes to replacement costs

It is important to be aware of any changes to replacement costs that may arise from time to time. The recent VAT rise means that it will cost an additional 2.5 percent to purchase replacement items in the present market. Also, manufacturers and distributors may raise prices in line with other external factors, such as escalations in raw material costs.

Precious metal prices have risen sharply over the past few months, which affects more than the obvious items such as jewellery and watches. Gold is also a key component in the construction of electronic equipment, such as mobile phones and computers, so when the gold value fluctuates it can have a knock-on effect.

It is important to always be realistic when making estimates, irrespective of whether you have standard or specialist house insurance. Too low a figure might leave you at risk, but a substantial overestimate will likely push up your premiums and could be considered fraudulent in the event of a claim.

When estimating rebuilding costs it is likely that you will have little idea how to proceed - unless of course you are familiar with the intricacies of the construction trade. For this reason, the Association of British Insurers offers access to an online rebuilding cost calculator for your convenience.

To Claim, Or Not To Claim?

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What happens if the goods are under insured?

If the value of your belongings is higher than the amount that you have insured them for, and you need to make a claim following loss or damage, then your insurer can only agree a settlement based on the sum insured which you stated when taking out the policy. It’s very important to properly insure your contents so you are not left out of pocket should the worst happen.