The cost of living crisis continues to bite in many parts of the world and it is tempting to cut back on certain forms of saving or insurances. However, the risks are high. As an example, 80 percent of U.K. properties are underinsured.
‘Home insurance’ can come in three forms: contents insurance to cover the items within your home, buildings insurance to cover the build itself, or it can be cover that contains both of those elements.
The cost-of-living crisis may also mean that some are having to consider cutting costs, reducing cover, or worse, cancelling cover entirely. Insurance experts A-Plan Insurance have explained to Digital Journal why now is not the right time to cut corners on your contents insurance. They also offer some advice on how to stay protected.
The purpose of home buildings and contents insurance is to provide homeowners with cover for unexpected and potentially costly situations. This could be anything from storm damage or fire, theft of possessions, accidental damage from an escape of water, a fallen tree or subsidence.
These costs can reach into hundreds of thousands of pounds, and if an insurance provider denies a claim, the impact is naturally significant. While most of homes are covered if anything happens, in the U.K. it is estimated that a quarter of people do not have cover.
While cancellations, degradation, excess levels, and not being sure what is and is not covered plays a large part in a home or buildings claim not being paid out, the main issue is arguably underinsurance.
The average U.K. home contains nearly £30,000 of possessions. However, many people severely undervalue their contents. For the underinsured, this means that if they need to make a claim in the event of a theft, fire, or even water damage, they may not be covered for the full replacement value of their personal possessions.
With the price to replace televisions, furniture, jewellery and other personal possessions increasing, it is good practice to keep a ‘contents checklist’ taking a room-by-room approach, and make sure you’re not underinsured or even over-insured.
One impact of this is where some insurance policies will apply what is called an ‘average clause’ once they ascertain underinsurance, which means the insurance company can reduce your claim by the percentage you are underinsured. For example, if a home is worth £400,000, and the household is insured for £200,000, and the damage comes to £50,000, the claim could be reduced by as much as £25,000 leaving you to foot the bill for the rest of the repairs to be met by the homeowner.
This indicates that buildings insurance is not just a box ticking exercise to get a mortgage or giving the purchaser a sense of ‘at least it’s covered for something’.
