Underinsurance: explained

Underinsurance is a common problem that can have devastating consequences when you come to make a claim.

Many homeowners may not realise the effect underinsurance can have emotionally and financially, especially if the property is thatched or listed.

Impact of underinsurance

Underinsurance occurs when the figure calculated by your insurer to cover the damage is more than your building sum insured (which should represent the full rebuild cost of your property) and generally comes to light in the event of a claim.

Every policyholder has to declare an accurate sum insured amount. If reasonable care is not taken this may be deemed as a deliberate, reckless or careless misrepresentation. If this is the case, your insurer may cancel your policy and refuse all claims.

If you have insured your property and then have a claim, a loss adjuster is appointed, who will visit the property and survey it. The loss adjuster will then calculate a rebuild cost. At that point, it is confirmed whether the property is underinsured – and if it is, the final settlement figure will be affected.

For example, if you have insured your building for £200,000 and you have a claim, the loss adjuster would review your building sums insured at the point of claim. If the loss adjuster advises your buildings should have been insured for £500,000, the difference in premiums would be calculated based on the different building sum insured. The percentage difference between the two premiums (£200,000 and £500,000) is calculated (47%). Your insurers would therefore pay 47% of the figure you originally insured your property for, meaning you would only receive a pay out of £94,000 (47% of £200,000).

If your thatched or listed home is underinsured, this could cause you to receive less than you expect in the event of a claim. Learn how underinsurance could impact you.

Understanding sums insured

The sums insured is the amount you would receive from your insurer if you lost all of your buildings and contents.

This figure represents the total limit and will include:

• Cost of outbuildings
• Boundary structure
• Labour costs
• Architects fees
• Scaffolding fees
• Debris removal
• VAT

Some homeowners may underestimate the importance of being adequately insured. If you had to reinstate your property, there would be additional costs involved such as surveyors, solicitors, and planning applications.

It’s important to remember even though your building sums insured may seem like a lot of money, the value represents more than just your house and everything in it.

Calculating your sums insured

To calculate your sums insured, this is broken down into buildings and contents;

Buildings

When considering the building sum insured, it’s important to remember the cost of rebuilding a thatch or listed property is not the same as its current market value.

If you’re in any doubt as to the accuracy of your building sum insured then we recommend you review this.

To ensure you’re accurately calculating your sums insured, we recommend that you seek a formal rebuild valuation from a professional source such as the Royal Institution of Chartered Surveyors (RICS).

Find a surveyor through RICS.

It’s important to note most valuations will not include VAT, so you should discuss this with your surveyor as it will need to be included in the building sum insured.

Contents

It’s easy to underestimate the total value of your home’s contents. Our contents calculator can help you to estimate the value of your possessions within your property.

Don’t forget to include items such as:

• Outbuilding contents e.g. sports or garden equipment, machinery, tools
• Carpets and curtains
• Wall fixtures
• Items stored in your loft or attic

Completing a room check may seem like a daunting or time consuming task but is worthwhile to help ensure you’re adequately covered in the event of a claim.

Worried you’re underinsured?

If you have any questions or concerns about underinsurance or an insurance policy, you can contact us:
Thatch property? 01823 250702
Listed property? 01787 880338