Underinsurance is a common problem and ultimately leads to policyholders losing out in the event of a claim.
When it comes to calculating your sums insured for the purpose of your home and contents insurance policy, you need to be realistic about the buildings sums insured. These costs refer to the amount it would cost to rebuild or reinstate your property from scratch, if it was completely destroyed by an insured peril. This includes any debris removal cost, all professional fees, and any walls, gates, fences, and pathways at the premises. It is in no way linked to, or will fluctuate with, the market value of your property.
If you are underinsured it is almost certain that your settlement will be reduced in the event of a claim, meaning that you will have to make up the shortfall. So, to avoid this, it’s worth getting your calculations right from the off.
At both inception and renewal of a policy, we always ask our clients to check that their buildings sums insured are suitable. One of our policyholders unfortunately did not review their sums insured, and as a result were affected when they had experienced a fire at their property. The Loss Adjuster appointed by the Insurers carried out an assessment of the property’s rebuild costs in order to determine whether the building sums insured declared under the policy was adequate. The assessment established that the property was underinsured by 34%. Therefore, the Insurers were only prepared to offer our client 66% of the claim to reflect the declared rebuild costs, under the terms of their insurance.
In layman’s terms, had the repair cost come to £100,000, the insurers would only pay out £66,000 leaving the client to fund the remaining £34,000. Considering this, dependent upon the size of claim, underinsurance could result in potentially catastrophic consequences for a policyholder. Sadly, for our client, it was certainly a large financial detriment that could have been avoided.
Following this loss, our client instructed for us to arrange a desktop survey, by a Chartered Surveyor. The resulting rebuild cost from the surveyor came back even higher than what the Loss Adjuster had originally indicated. With this feedback, our client proceeded to increase their sums insured accordingly to avoid a future reoccurrence.
No matter the type of building you own or what it’s used for, an assessment by a professional surveyor is the most accurate way to arrive at an adequate sums insured. This gives you the peace of mind that your insurance would provide the total rebuild cost, if it was ever necessary. Firth and Scott can arrange for a Chartered Surveyor to supply a RICS desktop survey from as little as £85.00 + VAT.