Am I Underinsured?


Underinsurance is a common problem with statistics showing that some 30% of homes are underinsured and a massive 80% of businesses*.


Lower sums insured generally lead to lower premiums; this is of course very attractive and seems unimportant until a claim occurs.

We also find that some people are unclear of what the sum insured should represent and are unaware of the ramifications of being under insured, which can be devastating.

What happens if you are underinsured?

In respect of business insurances, a claim will be reduced proportionately in line with the level of underinsurance, this is what’s called ‘Average’ which is contained as a clause within the policy.

For example your buildings are insured for £100,000 and you suffer a fire loss of £50,000. The Loss Adjuster from your insurance company visits you in relation to the claim and determines that the building should in fact have been insured for £200,000, which means you are 50% underinsured. Your £50,000 claim will be reduced to £25,000 in line with the 50% underinsurance.

Home insurance policies do not generally contain an Average Clause, however you will still be penalised for underinsurance. Insurers have right to refuse your claim if you have failed to disclose the correct value at risk to them or the policy can revert from a ‘reinstatement basis’ to an ‘indemnity basis’, which means that instead of settling lost items as new they will only pay you the second hand market value, which could be considerably less.


Unfortunately as a result of underinsurance people do lose their homes or cease to trade.  An insurance claim is always a difficult time however it can be prevented from turning into a life changing event if correct insurance coverage is in place.

Avoiding underinsurance

By ensuring you take the time to make accurate calculations, this will reflect in any settlements you receive and Firth & Scott can assist you with this. We can explain what your sums insured should represent and help you to calculate the correct values or where appropriate put you in contact with specialists.


*Figures provided by, AXA, and Daily Telegraph