Most people in the UK are underinsured - in fact, in the UK alone, over 7 million homes are underinsured. And many of us don't even realise it until we've experienced a burglary or a flood, then been informed by your insurance company that you didn't have the right cover. Unfortunately, this happens all too often.
When the term ‘underinsurance’ is used, it means that you are paying for insurance, but you haven't actually covered yourself for the right amount - which means you'll run into problems when you need to make a claim.
Why does this happen?
When you fill out an insurance quote form, you’re asked questions such as how much it costs to rebuild your home and what the total value of your contents are. Most of us, however, are just not that good at giving accurate estimations, because our lives are constantly changing and we don't tend to think about things like this. We know how much we blew on that new pair of shoes last weekend, but would need considerable time to calculate the total value of every item in our wardrobe!
The usual mistakes
Cover limits - In the case of Contents insurance, you probably need more than you think. The standard contents insurance policy on the market will cover you up to £50,000. A good exercise (if you have time!) would be to walk around your home and estimate how much it would cost to replace literally everything ("contents" refers to anything that would fall, if the house was turned upside down) — if would cost over £50,000, you might want to take a look at your Contents cover limit (the amount the insurer will cover in the event of a claim).
Single article limits - If you have jewellery, electronics, or other valuable items, you'll usually be covered up to around £2,000 per item. Anything over this, and you'll need to keep your insurer updated. Possessions such as expensive watches and engagement rings should be returned to over time, particularly as their values increase over time. For example, a Rolex watch worth £7,000 5 years ago could be worth £20,000 today.
Re-build value vs Market value - In the case of Buildings insurance, don’t mistake your rebuild cost to be the market value of your home, the latter is often higher. You need to know how much it costs to rebuild it, including the labour costs. Use a calculator such as this one to get an estimate. Luckily some insurers offer unlimited cover for buildings, although many insurers still require you to specify this amount.
What happens when you’re underinsured?
Let’s picture the scene. Your home has been burgled, all of your jewellery and electronics have been stolen, and your insurer tells you that they won’t pay out the full cost of the claim, because you only had insurance for £20,000, and actually your contents was worth £30,000. The insurer would be able to apply something they refer to as “average”. Basically, instead of paying out the full value of your claim, they would pay out a partial amount (in this case, 20k/30k = 67%). Not all policies will have an “average clause” so be careful if they suggest this, as you may be entitled to have your entire claim paid! Have a read of your policy wording to see whether this clause is in there.
If the insurer is being really unfair, they can “avoid” the policy entirely, which means they will cancel the policy from its start date, not pay your claim, and return all of the premiums that you have paid. This will only happen when they believe that you have “failed to disclose” to them the true replacement cost of your contents or buildings, which they will refer to as a "misrepresentation of your risk". If either of these things happen (or ideally, do it now!) you must look closely at whether the insurer is within their right to do this.
Can you do anything to stay on top of this?
First and foremost: make sure that you've read your policy wording! There is literally nothing worse than finding this out too late. The best actions you can take are to get regular valuations of your contents, home surveys, and always fill out the insurance quotation forms to the best of your knowledge.
When we launch Brolly, we will be doing everything we can to automate all of this for you, so you really won’t have to worry.
Brolly is an insurance app providing a fresh and personalised experience for the digital generation. We’re addressing the problems with the traditional approach to insurance; overpaying for cover you don’t need, extensive forms requesting details you don’t know, and lengthy policy documentation you don’t quite understand. Brolly’s customers can connect their inboxes and allow our AI to do all the hard work for them. We’ll locate your current insurance documents, compare these with your assets and lifestyle, then provide you with recommendations and more tailored cover which is personal to you. This is all managed straight from your smartphone, so yes, you can finally clear out that filing cabinet. Brolly launched its initial product on iOS in November 2017, and has raised $2 million in funding from renowned investors such as Peter Thiel’s Valar Ventures, Pi Labs, and Entrepreneur First. We’re changing the way that insurance works, so that it works for you. www.heybrolly.com