The importance and value of short-term insurance can never be discounted but while it is essential to be adequately insured, it is equally as important to ensure that your property and household contents are covered at the correct value to avoid being over or underinsured.
A lot of people are underinsured without knowing it. This means that if they claim on their property or household contents insurance, the pay-out might not cover or replace the full value of the assets. In essence, if their household contents are insured for only half the value their insurer may only pay half of the claim put forward. In the case of being over insured, this is where insurance cover has been taken for the value which exceeds the actual cash value of the insured asset, also known as the replacement value.
Elizabeth Mountjoy, Private Wealth Manager for FNB Insurance Brokers says, “To ensure that you financially protect your property and home contents, it’s important to confirm that you’ve insured your assets adequately. If you don’t value the cost of your home contents accurately, you may be under-insured – and it could cost you quite a bit of money.
When you take out a short-term insurance policy; you are required to give the value of the property or contents that you want to insure. This value is known as the sum insured. In some cases, there will be a discrepancy between the value of the property (replacement costs) and the value of the sum insured. If the replacement value of the property is higher than the sum insured – this is known as under-insurance”.
Mountjoy shares some key considerations when assessing if your property or assets are under insured:
- Notify your insurer or broker and update your policy if you add features or assets to your home – Improving your home increases its value but can also mean you become underinsured. So, it’s important to notify your insurer when you improve your house and increase coverage to protect your home adequately
- Get your household contents inventory in check – For your household contents – go through each room thoroughly and note as many items as possible, creating a checklist with a full replacement value for each item, think of the worst-case scenario if you had to replace everything, you want to ensure that you have the correct sums to be able to do this. Remember to include contents from the garden and outbuildings and create a list that can be re-used or changed to make the process of updating easier in the future.
- Avoid guessing the value of your contents – Don’t guess or purposely evaluate an item to be worth more than it is especially to the extent where you think you would make a profit by doing this. Insurers are very good at determining an accurate value and it is in your own interest to do the same.
- Read and understand your policy fine print – Don’t take out insurance and then forget about any exclusions that may have been applied to your policy. For example, some insurers apply a safe clause endorsement for specified items such as rings or necklaces and will not cover theft of jewellery from the home unless it is kept locked in a safe whilst not being worn.
- Ask your Broker – Speak to your broker to see if they have any third-party companies who can do professional valuations for your home and contents. Although it could be a cost for you, the benefit is to get to the correct sum insured so that you are not over or underpaying on insurance and the valuation can be used as proof of ownership in the event of a claim.
“Being underinsured is a common issue for homeowners, and they don’t even know it until it’s too late. Our role as brokers is to bring about peace of mind by working with the information provided by the client to ensure that the risks one is insured for, and the level of cover associated, are appropriate for their needs,” concludes Mountjoy.