Underinsurance in home and contents insurance is a serious issue that many homeowners overlook, often without realising the risks until it’s too late.
What is Underinsurance?
Underinsurance occurs when the value of your property or possessions exceeds the cover in your insurance policy, leaving you under-protected in the event of a claim. For high-net-worth individuals with valuable homes and possessions, underinsurance can lead to significant financial losses.
Understanding how to calculate the right level of cover is crucial to ensure you’re fully protected.
Why Underinsurance is a Growing Problem
Many homeowners assume that the cover they initially purchased will suffice over time. However, the value of your home and possessions can change significantly as reported in an article by Ecclesiastical. Property values fluctuate, the cost of building materials rises, and homeowners often acquire new and valuable items without updating their policies. The result is a gap between what is covered and the actual replacement or reinstatement cost.
How to Calculate the Right Level of Home Insurance Cover
- Reinstatement Costs: Many homeowners are unsure on how to suitably insure their property, and some may use its market value rather than the cost to reinstate, which is a common cause of underinsurance. Reinstatement costs include factors like construction materials, labour, demolition and site clearance expenses as well as VAT, which can vary depending on location and inflation. Always ensure your policy reflects the full reinstatement cost of your home. If you are unsure, discuss this with your insurance broker and consider having your property surveyed.
- Contents Valuation: Accurately valuing your contents is essential. It’s easy to underestimate the value of personal items, especially when considering high-value items like jewellery, art, antiques, or bespoke furniture. Conduct an inventory of your possessions and update your policy to reflect any new purchases or acquisitions. Ensure that regular valuations are undertaken for valuable items such as jewellery and art.
- Specialised Items: High-net-worth individuals often own rare or unique items that may require specialised coverage. Standard insurance policies may not cover the full value of luxury watches, rare artworks, or vintage cars. In these cases, working with a specialist insurance provider to assess the true value of these items is essential.
- Regular Reviews: Your insurance coverage should not remain static. Regularly reviewing your policy ensures it keeps pace with changes in the value of your home, possessions, and even fluctuating market conditions.
How an Insurance Broker Can Help
Underinsurance is preventable, but it requires regular attention to the value of your property and possessions. Taking the time to accurately assess reinstatement costs, the value of your contents, and specialised items will give you peace of mind knowing that your home and everything within it is suitably protected. By working closely with James Hallam, you can ensure that your policy provides the right level of coverage, preventing any financial shortfalls in the event of a claim.
Get in Touch
If you have any concerns or queries on your insurance cover please don’t hesitate to speak to us.
You can call any of the team on 0203 002 9859 or email pcl@jameshallam.co.uk.