The importance of insuring your property for the correct value

From homeowners to business owners, underinsurance is a big risk for all property owners. We speak to Claims Consultant, Sharon Theobald about the prevalence of underinsurance and what you can do to make sure your property is insured for the correct value.

What is underinsurance?

“Simply put underinsurance is not insuring your property for the true cost to reinstate or replace it. Often people will think that if they insure their property for less then they’ll save some money on their premium. Yes, that could be true. But, by saving a few pounds on your premium, it could cost you dearly and you could be financially out of pocket, should you have a claim.”

How would you be out of pocket?

“If you’re underinsured and you suffer a loss, you are required to contribute to your claim proportionately. For example, if you have a claim for £10,000, and you are underinsured by 50%, insurers will only pay £5,000 of your claim, and you will be expected to contribute the remaining £5,000. That might be okay when the figures are low but if you have a claim for £100,000 that’s going to cost you £50,000.”

What’s a common mistake people make?

“Often people make the mistake of insuring their property at the market value, what you should be insuring your property for is the reinstatement value. That is the cost to rebuild your property from scratch, including all groundwork, surveyors and architects’ fees. If you’re unsure of the rebuild value on your residential property you can go to the BCIS website and that will give you a guide price.

“However, you do need to be careful, as this is just a guide and you can still be underinsured if you take a guide price that is then found to be too low. The onus is on yourself to ensure that you are adequately insured. Your insurance policy will have a requirement to ensure the property is insured to its correct value. If you have not insured your property for the correct level, your claim may only be paid proportionately.”

How can I get a reinstatement valuation?

“If you’ve recently purchased a property you will probably find that the bank or building society have put an insurance valuation in there. As mentioned above, you can use the BCIS website yourself if you know the floor area of your own residential property. Alan Boswell Group also has someone inhouse that can help steer you in the right direction with desktop valuations for more complicated or technical evaluations.

“For the most accurate independent assessment, you are best going to an RICS surveyor (an accredited and qualified surveyor) who will be able to conduct full blown evaluations, for a fee. If their valuation is incorrect, because you’ve gone to an RICS qualified surveyor and sought the correct advice, some insurers will overlook it. Although, the likelihood of an incorrect valuation is very slim. What is crucial is that you speak to somebody who understands. We can all make assumptions, but those assumptions may not be correct.

“If you suffer a loss, especially if it’s a significant loss, you don’t want to be worrying about whether you are adequately insured. What you want is to get your claim resolved and get back to normal as soon as possible. If there is possible underinsurance at the beginning of a claim it can hold up insurers accepting policy liability and that’s a concern.”

How prevalent is underinsurance?

“Last year, QuestGates, a chartered insurance loss adjusters, carried out a study and found that up to 70% of the valuations that they carried out were underinsured. The average underinsurance was 40%.”

Why do you think so many people are underinsured?

“There’s a lot of people that just roll over their insurance every year. They get the letter and don’t think they need to do anything. Prices do change, and you shouldn’t rely on being index linked. Just check. It’s worth spending a few pounds to ensure that you are adequately insured.”

Find out more about underinsurance and how you can avoid underinsuring your property in our guide. For advice and guidance on a range of products to cover your needs, take a look at our personal insurance, business insurance, and landlord insurance services. You can also speak to an expert directly by calling our friendly and experienced team on 01603 218000.