According to the Association of British Insurers 1 in 5 of British households are underinsured. Being underinsured is not a problem until…..you have to make a claim, and this presents all sorts of problems especially when it comes to contents. Most people take into account what they paid for their belongings and not the replacement value, for starters look at the V.A.T today…20%!
An average family of four usually estimate their contents to be around £25,000 when in fact this figure should be around £50,000, and this is because there are many things that are not taken into consideration. Items such as clothes, kitchen appliances, crockery and utensils, carpets, children’s toys, linen, curtains, items in the loft and last but not least, wooden floors are often forgotten about. Therefore, should you make a claim due to fire or flooding you will struggle to replace your entire inventory.
Items of high value should be insured separately, and take care should you have a pair of ‘Ming Vases’ for example. These should be valued and insured as a pair and not singularly, so if one is broken you need to be reimbursed to what the valuation is for them as a pair.
Another situation to tread very carefully on is the value you insure your property for and here is a simple example. Let’s say you have insured your property for £100,000, you have a major claim to rebuild and it turns out that the rebuild cost is £200,000. Effectively the property is 50% underinsured, and in this case the insurer will only pay out 50% of the insured value you placed on it. This means that you will only get £50,000. A massive loss, leaving you unable to rebuild, and paying a mortgage on a property you no longer have! Avoid this situation at all costs by insuring correctly and this will not happen.
Commercial buildings can very easily be underinsured, and this is mainly due to new building regulations which are regularly updated. Most commercial buildings do not conform to today’s new regulations, and in general they do not have to – until a major claim is made due to a fire and a virtual rebuild is required. The new building regulations of today stipulate; Thermal Flooring, Cavity Wall Insulation, Loft Insulation, Disabled Access which includes ramps, handrails, alarms, Disabled Toilets, and where applicable, Disabled Showers. Normally new drawings would be required, and that along with everything else will run into many thousands of pounds extra which you could end up paying for.
The A.B.I has commissioned the Building Cost Information Service which has a website providing a ‘Public Rebuild Calculator’ along with a link for commercial properties, and it’s worth a visit. It’s best to Google this. Then scroll down to the Rebuild Calculator.
What might seem a minefield is actually easily navigated by taking some time out to obtain rebuild costs. Simply use the BCIS calculator which is free for domestic properties. All you have to do is register, enter your property details and press ‘calculate’.