Contents Insurance: Whatever You Do, Don’t Under-Insure

Have you taken out contents insurance? Did you know that “under-insurance” is so widespread that, according to one survey, it affects up to half of insurance customers  who make a claim?

When you under-insure, the cover you take out is less than your possessions, including your valuables, are worth. For example, you may take out £10,000 worth of cover when the contents of your property are worth £20,000. This may be because you want to keep your premiums low – or simply because you have under-estimated the value of all that you own. It’s easily done.

Now you might think that this shouldn’t be the end of the world. If worst came to worst, you could only claim up to £10,000, right? Uh… no. It appears that if you under-insure, your insurer only has to pay out 50% of any claim – even if that claim is for a few hundred pounds.

And there’s more. The worst case scenario isn’t claiming £10,000 instead of £20,000. It is having your insurer tear up your policy and refuse to pay you anything. This is what recently happened to the Cade family, who had £27,000 worth of watches, jewellery and gadgets stolen during a burglary at their home in Marlow, Bucks. When they submitted an insurance claim (to an insurance company I’ve never heard of; the Cades found it on a comparison site), the company cancelled their policy and, instead of paying out, refunded their premiums instead.

The company wrote to the Cades with the following explanation:

“As a result of our investigations, certain facts have emerged which have caused underwriters to void your policy of insurance on the grounds of material non-disclosure and misrepresentations made by you. The result of this voidance is that the policy does not and has not existed, and therefore no claims are payable under it.”

On the face of it, the Cades weren’t even under-insured. Their contents insurance was for £50,000, and their claim was for £27,000. However the small print for their policy specified that the valuables in their home should account for no more than a third of the total cover: £16,667.

It should be noted that this isn’t regular industry practice. Apparently most insurance companies will pay a proportion of your claim if you find yourself in this situation.It is a cautionary tale though, isn’t it?  Not only have the Cades lost £27,000 of valuables, but they have also to pay an additional repair bill of £4,000. They have complained to the Financial Ombudsman, but a decision about their case hasn’t yet been made.

There are two morals to this story. The first one is the obvious one: read the small print. If you take out a policy online, as so many of us do now, it’s all too easy to tick the box saying that you agree to the terms of your new policy, without bothering to scroll all the way to the bottom while reading those terms and conditions carefully. Don’t fall into that trap. Read the small print.

The second moral to this story? It’s doom-laden, but it’s a must-do. Before hammering the comparison sites to get the best possible deal for your annual contents insurance, take some time out. Sit down and list the value of everything in your property that you would need to replace if a fire razed your house to the ground tomorrow. Yes: we’re talking about what you would need to buy if you lost everything. Don’t stop at the contents of your jewellery box, or your TV, or your computer. What about your carpets? Your curtains? Your books? Your white goods? Your pots and pans? Your lawnmower? Your children’s toys? Even your lightshades would need replacing.

Many of these items aren’t worth a lot on the face of it, but if you lost them tomorrow, could you afford to replace them all?

As a guide, here are the values of the possessions owned by the average British household:

• £4,000 – furniture
• £3,000 – electricals
• £2,000 – white goods
• Almost £2,000 – clothes
• £1,800 – jewellery
• £1,700 – carpets and rugs
• Almost £1,000 – curtains and blinds
• £1,200 -garden and garage items.

I suspect that one reason why under-insurance is so common is that when you don’t have them all set down in a list in front of you, it is easy to under-estimate your worldly possessions –  both the quantity and the value. 

This post was brought to you in association with Miss Thrifty partner Endsleigh Insurance (http://endsleigh.co.uk).

Image credit: The Library of Congress.