On this page you will find an explanation of underinsurance including:
Underinsurance happens when your property is insured for less than its true value. It is a common occurrence since most policyholders do not have accurate knowledge about the total value of their property. Add to that the fact that many insurers do not ask specific questions regarding the total value of your property; your cover is likely to be insufficient, making you underinsured.
Many people in the UK are underinsured without realising. With more than 6 million UK households underinsured, literally millions of policyholders could lose out, and not just a small amount either; potentially tens of thousands of pounds. Underinsurance may provide you with a slightly cheaper premium each year, but it doesn’t cover you for the value you need, and you’ll be responsible for the shortfall, not your insurer.
Underinsurance may provide you with a slightly cheaper premium each year, but it doesn’t cover you for the value you need.
Insurance cover is often applied for as a quick to-do, one more thing to check off your list. You think by filling in the supplied forms, or making a phone call answering the relevant questions, the value of your property is protected should you need to make a claim. However, the forms you supply and the questions you answer are typically pre-filled and the guidance based on averages.
As an example, the contents value of a domestic property is usually set at £10,000 based on the average. You may think this is enough, without giving the valuation any further thought. Your insurance provider may ask something like, ‘Is the total sum of your contents worth less than £10,000?’ You may give it a quick thought without any thorough evaluation of the replacement cost should you need to make a claim. The accuracy of your insurance cover is likely to be insufficient as a result. This causes underinsurance.
Underinsurance can be caused by several ways:
It is your responsibility to avoid underinsurance. Whilst insurance cover applications may be misleading or even inaccurate; based on pre-filled information, averages, and broad questions, it remains your responsibility to ensure your cover is accurate. Whether your insurance policy cover is inaccurate due to deliberate misinformation, or unintentional carelessness, your insurance provider will not act with any empathy if you need to make a claim. When applying for insurance cover, it is your responsibility to make sure you consider the replacement cost of all your property.
The insurance policies where underinsurance commonly occurs are:
It is important you know what happens when you are underinsured. For the consequences of underinsurance, click here.
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