Underinsurance refers to a situation where an insurance policy doesn’t reflect the true value of the assets covered by that policy.
When working with a broker to determine the right insurance solution for your needs, it’s up to you as the policy holder to accurately estimate the costs of replacing your assets.
When it comes to home insurance or contents insurance in particular, homeowners need to estimate the cost of replacing their home correctly and to ensure enough cover is in place to repair or rebuild their home to the same size and quality as it was before. Making sure rebuild costs are kept up to date is vital.
When you need to rebuild your home, the last thing you want to discover is that the sum insured isn't going to be enough to cover the cost of doing so.
Crombie Lockwood Claims Manager, Alana Howard, says clients are often surprised at the costs of replacing certain assets.
“It’s worth noting that relying on market valuations for setting a sum insured isn’t actually giving you a totally accurate picture. Market valuations include the value of the land and not just the cost to rebuild - and it’s the rebuild amount that you need your insurance policy for,” Alana continues.
Keeping an eye on changing values
“Underinsurance can also be a risk where an older item might now cost a lot more to replace with its modern equivalent,” says Alana.
Challenges can also come up when trying to replace unique or specialised items, such as contents that have been crafted in a hard to source material.
You can avoid underinsurance by keeping replacement cost estimates up to date. The need for an accurate valuation extends beyond the moment an insurance policy is drawn up. Reduce your risk of being underinsured by logging all significant assets or high value purchases at the time.
The impact of Covid on sum insured
Global material shortages, supply chain delays and turbulent commodity pricing could all potentially affect how much you pay to rebuild your home to the desired standard and within the expected time period. Similarly, replacement of contents could take longer to arrive and cost more to land.
With international travel off the menu for most Kiwis, the purchase of significant items such as updated motor vehicles, lifestyle equipment like a jet ski or caravan, or improvements to the home – a new deck or spa pool for example – have become more of a priority.
New assets and changes to the nature and value of the home should be added to insurance policies accurately and when they are purchased, rather than waiting for the approach of an insurance policy renewal date.
“The best way for anyone to keep on top of their sums insured is to let their insurance broker know of any changes that might need to be made to their cover at the time of purchase,” says Alana.
“Keeping that conversation going and keeping a finger on exactly what assets you have and what their values are, are the best ways to avoid any surprises in the event of a claim needing to be made.”
Crombie Lockwood can help guide you through the process of setting your total sum insured to make sure you get the full insurance cover you need.
To get your insurance sorted, talk to your local broker or contact Crombie Lockwood on 0800 276 624.
These articles were featured in Harcourts Property Focus, Issue 6 2021.