Contents underinsurance

The importance of having the correct content sums insured is important for the following four reasons:

• There may be a shortfall in the event of a claim
• Your insurer may apply the average clause. This states that if you are underinsured, insurers can reduce the amount they pay out in the event of a claim. For example, if you are insuring items for 70% of the correct sum insured, and therefore paying 70% of the correct premium, the insurers will only pay out 70% of your claim.
• Your claim might be disputed. If the insurer deems that you have deliberately or ‘recklessly’ underinsured then they may refuse to pay a claim completely.
• Insurers may decline a claim completely if the true sum insured is so high that they can prove they wouldn’t have offered you the policy in the first place. In these instances, the insurer may cancel the policy leaving you uninsured.
• Insurers may decline a claim if they can prove that the true sum insured would have led them to offer a policy with different requirements. For example, an intruder alarm or a different grade of safe. Failure to meet these requirements would have rendered the claim invalid.

It’s worth noting that if a claim is declined you will need to disclose it when applying for future policies.  This may make it difficult to find home insurance or move providers. You can read more about this is our article: Is your claims history affecting your home insurance?

What factors do I need to consider when setting my content sums insured?

The content sums insured is essentially the amount it would cost to replace all of your contents. This includes:

• Soft furnishings – carpets, curtains, beds
• Furniture
• Clothing – including shoes, handbags, accessories, ties, hats, sports clothing, sunglasses.
• Garden furniture, machinery, BBQs.
• Fitness or gym equipment
• Bikes and sports equipment
• Contents in your attic, garage or outbuildings
• Technology – computers, laptops, phones, smartwatches, game consoles.

For most policies, you should calculate the replacement costs as new with no deduction for wear and tear.

Should I include fixtures and fittings?

Fixtures and fittings - including any lighting or sound equipment you may have installed - and the cost of your fitted kitchen, fitted appliances, wardrobes and fitted bathroom should be included in your building sums insured, or if you live in a flat, under the “Fixtures and Fittings” or “Tenants Improvements” sections. You can read more about that in our article: Why your home might be underinsured

How should I calculate the replacement costs for high value items and collectibles? Like all things, demand for art, antiques, and collectibles goes through changes, and values fluctuate. For example, over the last five years the value of gold has risen by 78%. To protect yourself from this we recommend that you get an up-to-date valuation. Make sure the valuation is for insurance purposes, that you have photographs, and that documentation is kept in a safe, secure, but memorable place in the event of a claim. Some of the insurers we work with will give a 25 per cent or even 50 per cent uplift on the value for three years following a valuation to protect policyholders from rising prices.

My contents sum insured is index-linked. Do I still need to review it annually?

Although insurers index-link sums insured, market fluctuations and/or inflation rates can impact the ability of insurers to keep up.  And if the starting point is too low, even with index-linking, you still can fall into the underinsurance trap.

For high value items index-linking may not be sufficient – particularly if there is a sudden spike in a particular market, for example the luxury watch market.

Does an increase in my sums insured mean higher insurance premiums?

Your insurance premium is based on your sums insured. However, there are steps you can take to manage the premium.

• Some items can be insured under the Valuables or Fine Art section of an insurance policy. For example, coin collections, artwork or garden sculptures. This may reduce the premium if a lower “rate” is applied.
• If you have a jewellery collection, then consider your wearing habits. We often speak to new or prospective clients who have all their jewellery insured on a worldwide basis, all the time. This is often inappropriate and gives rise to a higher premium than is necessary. To find out more read our article: Floating Limits.
• Having a home safe is not only a great way to protect your valuables but it can reduce your home insurance premiums. We appreciate that choosing a safe can be a bit of a minefield, so here’s some advice: Safety First – top tips for your home safe. Please note that any safe you choose will need to meet insurer requirements.

For more advice on managing your home insurance premiums read our article: Ways to manage your home insurance premium

I have an unlimited contents policy, so I don’t need to worry.

There is no such thing as ‘unlimited cover’ no matter how much you pay. Just because your contents are unlimited this doesn’t mean that you’re properly covered. In fact, it doesn’t mean that you are guaranteed anything, it simply promises to pay up to an infinite figure – there is no guaranteed minimum figure. Plus, there are all kinds of inner limits which will apply. To read more about this you can read our article: Unlimited content insurance policies

Can anyone help me when it comes to setting my content sums insured?

A valuation not only prevents underinsurance but it’s evidence to support claim, and in our experience a claim is often settled much more quickly when there is an up-to-date valuation. A good valuation will include a description, weight, size and a photograph, the date and the valuer’s name and credentials. Some valuation companies offer a walk-through service. This is where they value your contents and art and antiques room by room. 

How can Howden help?

We have a panel of recommended valuation companies that can assist by not only valuing your pieces now, but by also giving you up-to-date valuations going forward. We’ll then make sure you’re properly insured and paying the right price for the most suitable policy.

To speak to Howden about your home insurance, call 020 8256 4901 or email privateclients@howdeninsurance.co.uk

Source:

Underinsurance in home insurance complaints – Financial Ombudsman service