What is underinsurance?
Your premium is calculated based on your individual circumstances and the amount of cover you choose to take out to protect your home assets. Underinsurance occurs when you’ve not taken out the right amount of insurance cover for your needs. There will be a variety of factors to take into account when you assess how much insurance you need. If you’re not sure about this you should get advice from a valuation expert because if that amount is wrong, it’s likely to impact the amount you’re paid on any claim you need to make.
What does it mean if I am underinsured?
Taking out insufficient insurance cover will essentially mean any claim will be insufficiently covered.
For example, if the cost to replace your taxi base contents is £20k but you have taken out insurance that will cover you for £10k, then you would effectively be underinsured by £10k or 50%. Therefore, any claim you make will only be paid on the basis of the amount of cover you chose, based on what is called the ‘average clause’ – so in this example your insurer would only cover 50% of any claim, no matter the size of that claim. This would leave you needing to pay the remaining costs yourself which could be anything from hundreds, to thousands of pounds.
Under what circumstances could you be underinsured?
If you haven’t had your property professionally valued for insurance purposes
If you have under valued your buildings or contents at the time of a loss
If you have altered or extended the property and not adjusted the valuation with your insurer
If you have made additional purchases (ie computers) and not informed your insurer