A simples guide

How much will underinsurance cost you?

Nobody likes to brag about what they’ve got but if you don’t accurately value the cost of your home contents, it could cost you thousands. Nearly seven million homes (6.8m) are underinsured and 5.2 million have no insurance at all, putting more than £200 billion worth of home contents at risk of not being repaired or replaced. 

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Uninsured and underinsured home contents

If you rent, burglary accounts for £330 million being lost every year as tenants fail to organise their own contents cover. Almost half of those who rent (48%) admit to not having their own contents insurance and amongst the younger tenants that figure’s even higher at 55%.

Being underinsured means that the amount of money you’ve insured your contents for, won’t cover the full value of all your contents should you come to claim. But that’s not all, if this occurs, your insurer may try and limit their liability even further by what’s known as ‘applying average’ or the ‘average clause’.

Applying average means that your insurance company will only pay out a proportion of what your goods have been valued at. The equation used to evaluate the risk is the sum insured, divided by true value of the item then times by the loss.  In its very simplest terms if your contents are only insured for half their value then your insurer will only pay half the claim. 

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Uninsured and underinsured home contents

For example, a property with a contents valued at £50,000 but insured for only £40,000 is 20% underinsured. If the property to the value of £20,000 is damage by fire, your insurer could reduce the claim by 20%.  This means you would only receive £16,000 from your insurer, leaving a shortfall of £4,000 for you to pay.

You might think you have nothing worth stealing but insurance isn’t just about covering you for theft. Your home contents policy will cover you for insured events such as fire and flood – which are potentially more devastating than a burglary where you do at least stand a chance of getting back what you’ve lost.

Underinsured home contents

It’s tempting to lower your insurance premium by underestimating what your home contents is worth but 26% of people who do have cover have underinsured their contents by (on average) £20,000.  It’s easy to do and 39% of people have admitted to not taking into account family heirlooms that have been inherited such as jewellery, furniture and antiques.

Don’t let underinsured contents catch you out, it’s easy to forget items that you take for granted – carpets, curtains, light fittings, bedlinen and towels but these all add up. You can get a more accurate measure of what you own by using online contents calculators that some insurance providers have on their websites. You can also download apps that do the same. On average, British households contain:

  • £4,000 of furniture
  • £3,000 of electricals
  • £2,000 of white goods
  • Nearly £2,000 of clothes
  • £1,800 of jewellery
  • £2,700 of carpets, rugs, curtains and blinds

Avoiding underinsurance

You should double check what exactly ‘contents’ means in the eyes of your insurance provider – does it include what’s in your shed for example? And if it does – are you covered for the full value of the contents?

Don’t forget items that you may have put away – just because you don’t use them everyday doesn’t mean they’re any less valuable (ironically you may have stored them because they’re too valuable). Check you’re covered for any single items that are worth a lot on their own – you might need to take out more specific insurance based on its value.

Your policy should also reflect what it would cost to replace your belongings at today’s prices – not what you paid for them five years ago. So when your policy comes up for renewal, always take stock of what you own, don’t be tempted to just renew your policy without really assessing your belongings. Why not compare the market for competitive home insurance quotes; because if you don’t value what you own, who will?

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