Monday 18 April 2016
What does it mean if I am underinsured?

Underinsurance occurs when you have not taken out the right amount of insurance cover for your needs. It can be both financially and emotionally devastating to find out that a claim won’t be fully covered and there are insufficient funds to rebuild a property after a fire, for example.

Underinsurance happens for a variety of reasons. Some property owners take an ‘it will never happen to me’ approach and view insurance as an additional and unnecessary cost. Many people underestimate the cost of repairing or even rebuilding their homes or investment properties without taking into account rising construction costs. Others fail to increase their insurance cover after renovations such as the addition of an extension.

It is vital that property owners, whether an individual consumer or investor with a wide property portfolio, let their insurance broker know about any changes to a property or business.

The 'average clause'

If the cost to rebuild or replace your property or contents is £100k but you have taken out insurance that will cover you for £50k, then you would effectively be underinsured by £50k or 50%. 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, to millions of pounds.

For more information about property insurance contact our Property Insurance Team; who have a wealth of experience and knowledge in arranging insurance for properties of all shapes and sizes.