Under insurance is when your insurance cover doesn’t do what it says on the tin, the contents don’t match the label, it’s like buying baked beans in a rich tomato sauce, except that on opening the tin you find split peas, something is missing.
We all expect that if an accident should occur, our insurance will be there to cover the costs of the damage. The reality, frighteningly, is that if you are under insured the company will not pay out the full amount.
For example your house catches fire, it’s bad, £100,000 worth of damage, but you believe there will not be a problem because you have £100,000 worth of cover. But you are actually under insured because today the total replacement cost is £200.000. When you filled out your proposal form for your house insurance, it may have been with your bank or on the internet, you considered £100,000 to be sufficient to replace or repair any damage. This is where things have gone wrong.
The insurance assessor, who comes out to assess your damage, says you should have been insured for £200,000 but because you are only insured for £100,000 you are 50% under insured. If you had lost the entire property in the fire, it would have cost £200,000 not your estimate of £100,000.
That is why they would only pay you 50% of your £100,000 cost to rebuild your house, in this instance £50,000, although you have sufficient cover for the whole repair bill.
The sad part of this situation is that you did the right thing, you insured your home, but had you taken professional advice they would have explained why it is so important to have an accurate and current valuation.
Being wise after the event is no help, but I hope this article can prevent you from being a victim of the frightening example above by illustrating the value of seeking professional advice.
Being under insured is not being insured.