How to avoid underinsuring your home

If you want your home and all its contents to be fully covered, it’s vital the valuations you give your insurance provider are as accurate as possible. Keeping valuations low might keep your costs down, but it can also leave you underinsured and cost you thousands if you need to claim.

Written by

Rachel Lacey

Insurance and money expert

Last Updated

25 OCTOBER 2022

4 min read

Why underinsuring your home could be costly

Lots of people underinsure their homes accidentally – often by not giving enough thought to the information they give their insurance provider. Others will do it deliberately, to get a cheaper home insurance quote.

Either way, if you underinsure your home, you could end up disappointed if you ever need to claim. The pay-out you receive might not be enough to replace your possessions or rebuild your property, forcing you to dig into your own pocket to pay for replacements or repairs yourself.

What is the ‘average clause’ and why does it matter?

There’s a little-known insurance term called the ‘average clause’. This allows insurance providers to only pay a percentage of your claim if your property is underinsured.

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

Take a property with contents valued at £50,000 but insured for only £40,000 – it’s underinsured by 20%. If contents worth £20,000 were damaged by fire, your provider could reduce the claim pay-out by 20%. This means you’d only get £16,000 from your insurance provider, leaving you with a £4,000 bill to foot yourself.

How do I work out the value of my contents?

It’s tempting to lower your insurance quote by underestimating the value of your belongings, but that could backfire if you need to 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 your kitchen equipment, books, toys, clothes and shoes. Just think about how much it would cost to replace every item you and your family members own.

To work out the value of your contents, go through each room and write a list of what it contains. Don’t just include the furniture and visible items, think about the contents of your cupboards, wardrobes and drawers too. And don’t forget the contents of your garage and shed, if they’re included in your policy.

To find out more, read our guide to accurately estimating the value of your home contents. Plus, you can use our handy contents calculator when you get a quote from us.

It’s a good idea to review your cover once a year to make sure it’s up to date.

How do I work out how much buildings insurance I need?

For buildings insurance, you need to ensure your home is covered for its rebuild cost – not its market value.

You can work this out using the rebuild cost calculator provided by The Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS). Or we can help you calculate your rebuild cost using the BCIS service when you compare buildings insurance quotes with us.

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

Underinsuring your valuables

You 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 single item limit. This is the maximum amount it will pay out for any one item. It’s often around £1,500, but could be lower or higher depending on the provider.

If you own anything worth more than the single item limit, it can be listed on your policy separately for an extra fee.

It’s a good idea to regularly review your valuations too. The value of jewellery, for example, may well rise over time and so it’s important your insurance is updated to reflect this.

Getting help with a valuation

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.

If you’re not sure whether you’ve valued your possessions or home’s rebuild costs correctly, get in touch with your insurance provider. They’ll be able to guide you to help ensure you have the right level of cover.