Underinsurance arises when your residential or commercial property is insured for less than its actual worth. This issue is widespread because many policyholders lack precise knowledge of the value of their property. Many policyholders just look at the market value, when in fact this isn’t the full picture. Additionally, insurers may not probe deeply into the full value of the property, leading to underinsurance.
Underinsurance can stem from various factors:
- A miscalculation of the property and contents within the property.
- Underestimating what the property would cost to repair, given the current costs in relation to inflation.
- Trying to get a reduced premium, generally at the cost of not including key pieces of information.
A common reason for Underinsurance
Underinsurance often results from a hasty application process. If you rush and do not provide accurate information, you risk being underinsured. You might think that filling out forms or answering questions over the phone is enough. However, these forms and questions are usually based on general averages and may not reflect your specific needs.
It is ultimately down to you to prevent underinsurance from happening. At the end of the day, insurers will not sympathise with you if you were inaccurate when arranging your cover. Be meticulous when applying for buildings insurance, ensuring that the entire replacement of your property is accounted for.
The ‘Average’ Clause
Insurers might apply the ‘average clause’ if you are underinsured.
Most insurance policies include an ‘average’ clause as a penalty for underinsurance. This clause means that if you’re underinsured, your insurer only pays a portion of the item’s value, corresponding to the underinsurance percentage.
Fully understand your policy
Accurately value your property to ensure that no factor is underestimated, leading to underinsurance.
Regularly review your policy, especially after significant events like renovations, extensions, and conversions.
Consider policy add-ons for additional coverage. If the area your property resides in is prone to floods, you will probably need extra cover to account for this.
Case study: Total loss fire claim
The below case study is not an example in being underinsured as such. Rather, an example of a devastating situation in which the policyholder received a full settlement, thanks to being adequately insured for the full total rebuild cost of their property.
Expert claims management from George Masterton
Our Peterborough representative went above and beyond to help this family in desperate need after suffering a total loss after a wild fire spread to their property. As the policyholder goes on to say in the video, insurance claims of this nature can be very complicated to deal with and it’s good to have someone guiding you through the process. Thankfully, George was on hand to bring the claim to a satisfactory conclusion for the family.
Need advice on underinsurance and the contents of your insurance policy? Let us know!