I frequently meet home owners who are not correctly insured and do not realise the effect it can have.  The following article sheds some light on the subject

My property will never be totally destroyed so why should I insure for its full rebuilding cost?

Firstly, IT IS possible for a house or commercial property to be burnt to the ground – we only have to look at the terrible pictures from the recent riots to see that.

Secondly, an insurer takes on the risk of paying out on the assumption that it is getting a fair premium for the risk being run, in other words it is insuring the full replacement cost. It is therefore a requirement in most insurance policies to insure for this amount.

So what if I am not insured for the full cost?

It is true that most claims are not for a total loss, but if you are not correctly insured, the insurer can apply something called “average”. This means that they can reduce the amount paid to you by the same proportion as the underinsurance. For example, you suffer fire damage which costs £30,000 to repair. If your property is insured for £250,000 and the actual replacement cost would be £500,000, then your claim for £30,000 could be reduced to £15,000 – quite a shortfall. If the fire did totally destroy the property then the shortfall would clearly be enormous.

An extreme case? Not necessarily – I frequently meet people and businesses who are drastically underinsured and for a business, it could mean being unable to start trading again, putting the whole company in jeopardy.

Don’t forget that contents and machinery also need to be insured for their full replacement costs.

Is there a solution?

There are several!

1. Talk to a broker (like us) who can give advice and guidance – some insurers offer free appraisals to help clients insure for the correct amounts.

2. Take advice from a surveyor.

3. If you are a homeowner, go around your house room by room, listing each item and give each one a replacement cost. It can take a little time but you will be surprised at the resulting total!

4. Engage a specialist valuer. There are plenty around, specialising in domestic and commercial properties. Call us if you need a name.

What about my premium?

Yes it may cost a more to insure for the full amount, but doubling your sum insured for example would not double your premium. And don’t forget, the premium is still tiny compared to what that shortfall might be!

Need help?

If you would like a free no obligation review of your insurance arrangements, please call us on 01527 306 041 or CLICK HERE to enter your details and we will call you.