Although a good insurance policy won’t prevent any of life’s calamities, it should make the financial consequences easier to bear. Underinsurance, however, can leave a policyholder liable for a large financial expense if a serious loss occurs.
If a homeowner is underinsured and there’s significant damage to a property, the insurance payout may not be enough to cover all repairs or replacement.
If your insurer discovers that you the policy holder/claimant is “under-insured” they may, if there is a clause in your contract, “apply average” to the policy.
You insure your home, (and contents) for say £300,000.
Following say a fire, you make a claim for £100,000.
Your insurer assesses the total value of your home (and contents) to be £375,000.
Thus your policy only covers 80% of the actual value, (£300,000/£375,000).
If your insurer chooses to “apply average” your payment will be 80% of the £100,000 fire claim which is £80,000 leaving you with a deficit of £20,000 to fix your home.
Although Index linking will increase your Sum Insured each year, if the initial figure is wrong, no amount of index linking will correct it.
Checking your sum insured
When you take out an insurance policy you are required to provide the value of the property. This value is subsequently known as “the sum insured”.
Most domestic house insurance policies require that the sum insured be the full rebuild cost of the property. It is the responsibility of you, the insured to get this figure right.
Rebuilding costs must include the costs of demolishing and clearing away the existing structure and rebuilding it to its existing design in modern materials, using modern techniques, to a standard equal to the existing property and in accordance with current Building Regulations and other statutory requirements.
No two properties are exactly the same and consequently, the total rebuilding costs for every house or flat will be different. Calculators exist that can give a general indication of rebuilding costs for many common properties within the UK, but it should be noted that it is not appropriate for all dwellings and the rebuilding cost of even similar houses can vary depending on individual circumstances.
Although Index linking will increase your sum insured each year, if the initial figure is wrong, no amount of index linking will correct it.
We at Skysurvuk offer a competitive ‘value at risk’ valuation service that can be tailored for any individual clients requirements.