How to avoid underinsuring your home

You have home insurance, so your property and possessions are financially protected, right? Not necessarily. If you don’t accurately value your home and its contents, you may be underinsured – and it could cost you thousands.

You have home insurance, so your property and possessions are financially protected, right? Not necessarily. If you don’t accurately value your home and its contents, you may be underinsured – and it could cost you thousands.

Chris King
From the Home team
4
minute read
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Posted 14 DECEMBER 2020

Why underinsuring your home could be costly

Many people are underinsured without knowing it. Others deliberately underestimate the value of their belongings to reduce their insurance costs.

Either way, it means that if they make a claim on their home insurance, the pay-out might not cover the full cost of replacing their goods.

Applying the ‘average clause’

There’s a little-known insurance term called the average clause that allows insurance providers to pay only a percentage of any claims made if the property is underinsured.

What that means for you is that if your home and its contents aren’t insured for their full value, your insurance provider may only pay part of the claim.

For example, a property with contents valued at £50,000 but insured for only £40,000 is 20% underinsured. If property worth £20,000 is damaged by fire, your provider could reduce the claim by 20%. This means you’d only get £16,000 from your insurance provider, leaving a shortfall of £4,000 for you to pay. That’s sure to sting.

How do I work out the value of my contents?

It’s tempting to lower your insurance premium by underestimating the value of your belongings, but that could come back to bite you if you need to make a claim.

The average home has contents worth £35,000. That sounds like a lot, but it’s easy to forget items like carpets, curtains, light fittings, bedlinen and towels. Not to mention things like your kitchen equipment, books, DVDs and clothing. These all add up. Just think about how much it would cost to replace every item you own.

To work out the value of the stuff in your home, you can go through each room one at a time and, if included in your policy, don’t forget the contents of your garage and shed. To make things easier, you can use our handy contents calculator when you compare with us.

It’s a good idea to review your cover once a year to make sure your list of belongings is up to date.

Underinsuring your valuables

You’ll also need to make sure you don’t underestimate any high-value single items, like an engagement ring or big-screen smart TV.

Most contents policies will have a maximum limit that any individual item can be worth before you need to specify it on the policy. This is often set at £1,500, but could be lower or higher depending on the provider.

If your valuable is worth more than the single item limit, it won’t be fully covered if you don’t declare it separately. If you’ve inherited or been gifted an item, it could be underinsured if it’s increased in value over time.

What else should I look out for in home insurance?

Check your policy to see what ‘contents’ means in the eyes of your insurance provider. Does it include portable items like your laptop, for example? And does it provide cover for any contents in a shed? If it does, are there any limits you need to be aware of?

Your policy should reflect what it would cost to replace your belongings at today’s value, not what they cost you five years ago.

For buildings insurance, you’ll need to work out how much it would cost to completely rebuild your home – not its market value – to get the right amount of cover.

You can work this out using the Royal Institution of Chartered Surveyors’ (RICS) rebuilding cost calculator. We’ll show you an estimate based on your details when you compare with us.

If you’ve carried out home improvements, such as building an extension or converting an attic, you may need to increase the sum insured – the maximum amount your insurance will pay out – to reflect the change.

Getting help with a valuation

As you can tell, insuring your home and its contents for the full value is vital, so you can be confident that any claim you make will be paid in full. Underinsurance means you could end up not being able to afford to replace your possessions or rebuild your property.

So really assess your belongings before you take out your policy, and then Compare the Market for competitive home insurance quotes.

If you’re not sure about whether you’ve valued your possessions or home’s rebuild costs correctly, get in touch with your insurance provider. They will be able to guide you in the right direction and give you reassurance that you have everything covered.

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