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Don’t get caught out by under-insurance

All policies contain an underinsurance clause.  So what does this mean to you?

At the commencement date of your insurance policy, it is your responsibility to ensure the sum you have chosen to insure for is adequate to replace the insured property in the event of a total loss.

If it is not then insurers are within their rights to reduce any claim you make under the policy by the percentage of underinsurance.

For example – if you insured for £75,000, but the true reinstatement value is £100,000, insurers could choose to pay only 75% of any claim.

You will no doubt appreciate that if this relates to the insurance on your home you would be left with a substantial sum to find to ensure a full rebuild could take place.

So now we need to consider how you can protect yourself and make sure the sum insured at the start of your policy is correct.

The only way to do this is to ensure you obtain a reinstatement cost assessment, often referred to as a valuation, from a qualified RICS accredited professional valuer.

If you act on his rebuilding cost assessment figure it will often be possible to arrange for an insurance company to waive the underinsurance clause in view of the fact you have had a professional reinstatement cost assessment.  However, you must ensure the reinstatement cost assessment is refreshed every three years to ensure the waiver remains in place.

At renewal in the years, you do not have a reinstatement cost assessment carried out it is important to ensure the sum insured is index-linked by the amount recommended by insurers or your insurance broker to help keep up with inflation.

A well respected RICS accredited professional valuation company has recently reported the following stats for 2018:

  • Overall, properties assessed increased their total sum insured by over 28%
  • An increase to the property’s value was recommended in 81% of the insurance valuations undertaken
  • For commercial properties, the average increase in value was 70%