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What Is Underinsurance? Underinsurance Explained

What Is Underinsurance? Underinsurance Explained

What Is Underinsurance? Underinsurance Explained

On this page you will find an explanation of underinsurance including:

  • What causes underinsurance
  • Whose responsibility it is to prevent underinsurance
  • Most common underinsured policies
  • Underinsurance summary

What Is Underinsurance?

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.

What causes underinsurance

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:

  • Incorrectly calculating the value of your home and contents.
  • Failing to include like the cost of removing debris in your calculations.
  • Increased repair costs caused by inflation.
  • Lessening your premiums without thorough care.

Whose responsibility is it to avoid underinsurance?

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.

What are the most common underinsured policies?

The insurance policies where underinsurance commonly occurs are:

  • Buildings insurance
  • Contents insurance
  • Business interruption
  • Cyber liability

Underinsurance summary

  • Underinsurance occurs when your property is insured for less than its true value.
  • It is often caused by miscalculating the value of your property and its contents.
  • Avoiding underinsurance is the full responsibility of the owner and not the insurer.
  • The insurer will apply an ‘average’ clause if you are underinsured meaning they will only cover you for the percentage that you were underinsured.

What happens when you are underinsured?

It is important you know what happens when you are underinsured. For the consequences of underinsurance, click here.

For assistance when dealing with an insurance claim, contact us today.

Related Claims and Topics
buildings insurance,Business Interruption,contents insurance,cyber liability,Insurance Claim Management,Insurance Claims,insurance policy,underinsurance,underinsured
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