According to the Association of British Insurers (ABI), £226 billion of contents in homes and flats are either underinsured or not insured at all*.
Underinsurance occurs when the policyholder has inadequate insurance to cover the cost of the insured property or items. It can cause serious problems if you have to make an insurance claim, as your insurance company may not pay out the full cost to replace lost or damaged items.
While sums insured for buildings and contents are generally index-linked (read our article on what that means here), you should still review this at renewal to ensure that they are up to date. This is to make sure cover is sufficient and includes any new purchases you’ve made since your last renewal. Here are some of the ways you can be underinsured as a private client and how to avoid it.
Is your building’s sum insured enough to cover the full rebuilding cost of your home, outbuildings, walls and paths, including professional fees, materials and labour and VAT where applicable?
The rebuild cost will vary according to the size, age, location and type of property you have, and can be a key area for being underinsured. While an online calculator can sometimes be useful, they can significantly undervalue the rebuild cost, particularly on old or listed properties.
Fixtures and Fittings – Flats and Apartments only
If you live in a flat, the buildings are probably covered under a block policy. However, you still need to consider the insurance for your fixtures and fittings – sometimes referred to as Tenants Improvements. This is an often-forgotten aspect of cover and is usually a subsection of the buildings cover.
You should consider the cost of your fitted kitchen, bathroom, fitted wardrobes and wooden flooring. A standard buildings policy will probably only pay for a standard ‘contract’ kitchen for example, leaving a shortfall. Insuring fixtures and fittings in your name also means that you have more control of the claim and the repairs that will be done in your home.
The contents sum insured should include just about everything that you would take with you if you moved house, which sometimes includes curtains and carpets. You should calculate the replacement cost as new. In our experience, people often forget to include the following whilst calculating contents:
- Clothing, shoes and handbags
- Curtains, carpets, soft furnishings, lighting and linen
- Outside sculptures, tools and gardening equipment
- Electronics, including tablet computers and games consoles
- Kitchen equipment
- Items stored in loft/attics, garages and summerhouses
- Golf and ski equipment
- Staff contents, if applicable
Fine Art and Valuables are not always index-linked and even if they have been in the past, the figures may not have kept pace with real-world values. The price of diamonds and gold are particularly volatile, and we recommend that you obtain a UK jewellery valuation from a registered valuer at least every three years.
Items over a certain figure, also called a single article limit, will need to be individually specified. A common misconception is to exclude the value of smaller items, under the single article limit when calculating the total figure. Lower value items need to be added up and included as unspecified valuables. Speak to us if you are unsure.
What to do next?
While we’ll do our best to help you avoid underinsurance, the Financial Ombudsman Service has ruled it is the client’s responsibility to provide the insurer with up-to-date figures. This is what you can do:
Read your insurance documents
Find out exactly what level of cover you currently have for buildings and contents.
Calculate your contents
Don’t underestimate the value of your contents. Call us for advice if you’re not sure.
Check your Jewellery & Watches (valuables) cover
Ensure that high-value items are individually specified. Ensure that you have a valuation and that it is less than three years old.
Check your Fine Art cover
Check your valuations are up-to-date and that high-valued items are specified.
Photograph each room, as well as high-value items, save the photos and back them up as well.
Count the cost of a rebuild
Speak to us to see if we can organise a buildings appraisal, possibly paid for by your insurer. This may not always be possible but it is worth asking.
Keep your insurance up to date
It’s usually a good idea to review your buildings and contents insurance cover at least once a year.
For more information, call 0208 712 8046 or email [email protected].