Are you underinsured?

Simply put, underinsurance is when your sums insured are inadequate and will not cover the replacement value of the items you are insuring.

Remember, when you insure, you are insuring for the replacement value, NOT market value. This is important when considering your sums insured, especially with the increases in building costs.

Underinsurance or Co-insurance

Underinsurance or Co-Insurance is a clause on most policies that allow an insurer to reduce a claim settlement if the properties sum insured is deemed inadequate.

Usually if the sum insured is within 80% of the replacement value, most policies will allow this margin. However, if the sum insured is below 80% of the current replacement cost, insurers can apply this clause and you will end up with a disappointing claims settlement.

Scenario; You insure your home for $300,000 and you experience a total loss, the true rebuild cost to your home is determined to be $600,000, therefore you are underinsured by 50%.

An insurer can then enforce the co-insurance clause (which is on most policies) and your settlement offer can be reduced by the percentage of underinsurance, in this case, 50%. You could then potentially only receive up to $150,000 to rebuild a $600,000 home.

How to avoid underinsurance

We have access to industry recognized tools to help determine the adequate sums insured for your home building, however, we always encourage you to get your own evaluation done by a professional to avoid any reduced settlement at time of claim.

Properties being underinsured is one of the biggest issues in the insurance industry now and has led to thousands of people being out of pocket when they come to claim.

Contact the team at Provide Insurance for all your insurance needs.