Under Insured - What risks do you face?

Paying out for insurance that won’t pay you back when you make a claim is just a waste of money.

Paying out for insurance that won’t pay you back when you make a claim is just a waste of money.

You need to audit your possessions to make sure you have the right amount of insurance, so if the worst should happen, you are not left with a huge bill.

It’s a false economy to pay for insurance that doesn’t do what you want it to.

If you under insure, the insurance company is only obliged to pay out to the limit of its liability – that’s the sum assured on your buildings and contents policies.

If you have possessions worth £40,000 – which is what insurance companies say is the average value of a home contents policy – but only £20,000 of insurance, then the you may only pick up £10,000 from a claim unless you have a new-for-old policy that pays the full £20,000.

Either way, you miss thousands of pounds of compensation and will have to find the extra cash from your pocket to replace your possessions.

Buildings

You run the same risk if you don’t have buildings insurance as well. If you have paid off your mortgage, then you might consider buildings insurance an unnecessary expense.

If your house should become unfit to live in because of fire, a boiler explosion or one of 101 other risks, buildings insurance pays the repair bill, and if necessary the full costs of demolishing and rebuilding the property.

Most people have buildings insurance but don’t regularly check to see the sum assured actually covers the value of rebuilding their property as house prices and building costs increase with inflation.

Mortgage protection

Typically, a homebuyer takes out a mortgage protection policy when they buy a property that will repay the outstanding mortgage if they should die or become unable to work.

Some people live in the same home for many years and often remortgage, for example, to pay for home improvements, repay credit card debts, or put a child through university.

If you don’t review your mortgage protection cover in line with any extra amounts you put on the mortgage, especially if you are married or live with a partner and have children, then if something happens that triggers a policy claim, the mortgage won’t be paid in full if you haven’t increased the sum assured over the years to reflect any extra borrowing.

Always tell your insurer when your circumstances change to make sure you have adequate insurance cover.

For instance, if you extend your property and make it worth more, this won’t affect your buildings insurance premium too much as a large proportion of your property value comes from the land it stands on.

Whatever happens to the property, it’s unlikely to affect the value of the land, which is about a third or so of the property value.

A final tip is if you have a home office, tell your insurer so you don’t have a dispute later about whether computer and office equipment is covered.