The Jersey Mutual Guide To Underinsurance
Homeowners take comfort in knowing that our home insurance provides a safety net should things take a turn for the worse. Be confident that your home insurance covers the true value of your property and contents or you risk underinsurance. A worryingly high percentage of households are thought to be insufficiently insured, leaving homeowners at risk of serious financial loss.
Am I underinsured?
If you underestimate the total value of your property and possessions in your home insurance policy, you will be underinsured. As a result, your cover will not be adequate when you come to make a claim. Your insurer may not pay it in full.
Over the years, as our possessions accumulate, it is easy to lose track of what they are truly worth. In Jersey, we are fortunate to live comparatively affluent lives. Our household possessions can run into tens of thousands of pounds. If underinsured, the value of your policy will not cover the cost of replacing your possessions or rebuilding your property. You could find yourself making up a significant difference in cost.
Here is a guide from Jersey Mutual on how to avoid the pitfalls of being underinsured. Make sure you secure the appropriate amount of insurance cover for your property.
What are the consequences of underinsurance?
Like any investor, insurers seek to protect their investments for the benefit of their organisation and members. You can expect any claim you make to be challenged if your property is not adequately insured and you have been paying a lower premium than you should.
Homeowners may feel that it is a risk that they are willing to take for cheaper premiums, but this could prove a devastating mistake. In the case of a serious incident, such as a fire, all household possessions could be destroyed and the property could require renovation or even rebuilding from scratch. The cost of being appropriately insured pales into significance if you consider the financial consequences.
What is an Underinsurance Clause?
If you are found to be underinsured in the event of a claim, then your insurer may apply the ‘underinsurance clause’. This means that they only pay you a percentage of your claim, which reflects the percentage that you are underinsured by. If your possessions are worth £60,000 and your sum insured is only £30,000, your insurer may only pay 50% of any claim under the clause. If you were to claim for a stolen watch worth £10,000 and the average cause is applied, you may only receive £5,000.
The underinsurance clause exists to encourage policyholders to submit an honest and accurate evaluation when agreeing their sum insured.
How to avoid being underinsured
To avoid running the risk of underinsuring your property and possessions, here is a helpful checklist from the experts at Jersey Mutual.
1. Undertake an accurate evaluation of your contents
Conducting a thorough evaluation of your possessions is fundamental to avoid being underinsured. Go from room to room in your house noting your possessions as you go, and don’t overlook any household essentials (see below). It may seem like a daunting task, but your time and effort will be well rewarded should you ever have to make a claim. Carefully check the details of your policy against your evaluation, and update it if necessary.
It may be helpful to use an online tool such as Jersey Mutual’s Content Calculator.
2. Don’t overlook essential possessions
Although it’s easy to tot up a mental inventory of our more valuable items, such as jewellery, electronics and furniture. Do not forget that day-to-day essentials can add up to a pretty sum. Think about everything you would need to replace in the case of a fire and what you might seek to replace first. It’s likely that luxury items will feature low on the list.
- Kitchen: If you love to cook and entertain, then no doubt your kitchen contains an impressive array of cookware. While you might naturally think to include designer pots, pans and knives in your evaluation, don’t forget smaller gadgets, appliances and utensils. They may not seem like much individually, but they can be worth a small fortune when added together. Also, consider including the value of the contents of your cupboards and freezer, as they could cost hundreds of pounds to replace.
- Outbuildings: These are often overlooked when the cost of possessions for insurance is calculated. Sheds and garages can house expensive sports equipment such as bicycles and also garden furniture and equipment. Not all policies include it as standard.
- Personal essentials: In the case of a fire, you can be left vulnerable and shaken. The first things you seek to replace could well be personal essentials such as clothing, shoes and toiletries. If your current essentials are of considerable value, it is well worth including them in your calculation. If you have a young family, also consider the cost of replacing baby and toddler essentials, as they soon add up.
3. Ensure cover for high-value possessions
If you own valuable possessions such as art, antiques, jewellery or designer clothing, be sure that the market value of each individual item does not exceed your insurer’s single item limit. Jersey Mutual’s House and Home Insurance policies have a single item limit of £2,500. If any of your possessions exceed the single item limit, a valuation will be required from a professional .
4. Calculate the cost of rebuilding your house
Even for wealthy homeowners, a shortfall in buildings insurance can be overwhelming if their property is in need of substantial repair or rebuild. When valuing your property for buildings insurance, it is not simply a case of using the market value. Your insurer will cover you for the cost to rebuild your property from the ground up. This is the figure you are required to submit.
Calculating the rebuild cost of your property may seem like a difficult task, but it needn’t be. Good insurers will talk you through the process and provide on-site evaluation if necessary. If you are not sure where to start, seek out useful online tools such as Jersey Mutual’s Buildings Insurance Calculator.
5. Include family member’s possessions
If family members other than young children live in your property, then the consequences of being underinsured may also affect them. Take care to include the total value of their possessions in your calculation. Older family members could own valuable heirlooms for example, while your grown-up children may own expensive gadgets and clothing that you are not necessarily aware of.
6. Review your policy on a regular basis
One of the most important actions to take to avoid being underinsured is to review and amend your policy regularly. It is easy to amass possessions year on year without really noticing their combined value; this could render your policy insufficient. Consider keeping an inventory of new items and their receipts on an annual basis. Conversely, record any items that you discard. Then adjust the sum insured in your policy if you think it is necessary.
With regards to valuables such as jewellery, their market value can fluctuate in price over time. Be sure to have them valued regularly and update your policy accordingly. A treasured ring that had doubled in value since your policy was last updated may mean your claim may not able to cover its value, which would be a great shame.
The consequences of being underinsured can be devastating, putting homeowners at serious financial risk. To avoid being underinsured, be prudent, thorough and honest when it comes to calculating your sum insured. In the unfortunate event that you need to claim on your policy, you will thank yourself. In the meantime, you can rest easy knowing that your safety net is large enough to catch you.
Avoid being underinsured with Jersey Mutual
Homeowners in Jersey need look no further than Jersey Mutual for contents and buildings insurance. Our valued Jersey Mutual members can rely on our sound advice to avoid the pitfalls of being underinsured. Our House and Home Insurance policy offers premium cover to protect both your property and your treasured possessions, and our High Value Home Insurance provides specialist cover for our high net worth members.
As Jersey’s only insurance society, we have no use for brokers and do not charge administration fees so you can be assured of premium stability. We understand how stressful it is when your property and possessions are compromised. Jersey Mutual have a genuine desire to settle claims swiftly and sympathetically so that you can make your house a home once more.
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