Please read this!
Underinsurance
is a very serious business. If you
insure your contents – whether it is your home or your business – for £10,000
instead of its true value of £20,000, you might be forgiven for thinking that
in the event of a total loss, insurers will pay you £10,000 – as that is the
limit you set on the value.
Actually
most insurers will pay NOTHING in this scenario – because they will deem you to
have been underinsured and therefore the level / degree of risk at your
property was not fully declared by you.
So, knowingly or not, the insurer will deem you to have deceived them
and so they will not pay the claim!
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Let me give
you an example. Mr Charles, a mobile
phone shop owner has stock valued at £80,000, but declares to his insurer that
he only has stock valued at £40,000. Mr
Charles feels that it is unlikely that all of his stock will be stolen and even
if it is, he will take the risk on the additional £40,000 himself. To Mr Charles, the additional premium required
to insure £80,000 of stock just seems unnecessary. He can use that money to take his boyfriend
out for dinner instead. Now, the
insurance company is only aware of £40,000 of stock and after assessing all of
the risks to the business and the premises they and deem the security
precautions at the shop to be adequate for that level risk. However, if they had known that there was
£80,000 of stock, they would have looked at the risks to the business
differently.
Sadly,
while Mr Charles and his boyfriend are having dinner at their favourite
restaurant, the shop is burgled and £20,000 of stock is stolen. Mr Charles thinks, “that’s annoying, but OK
as I have insurance cover for up to £40,000 of stock– so not problem, we’ll be
fine!”
Unfortunately,
the insurer feels that they were insuring a risk about which they were not
fully informed. There was £80,000 of
stock on-site – not £40,000. The premium
was therefore priced wrongly, the security measures were inadequate, what else might
Mr Charles have kept quiet about? Mr Charles
is deemed to have been knowingly (or unknowingly, it doesn’t really matter)
underinsured and insurers might pay him £10,000 if he is really lucky but more
likely if they follow the rules, NOTHING!
The insurer
isn’t doing anything wrong here – it was Mr Charles’ mistake. His only recourse is to try to use ‘mis-selling’
arguments – which might work (see below), but there is no guarantee – and it
certainly won’t be a speedy resolution.
Add to all
of this the fact that Mr Charles will probably have his insurance policy cancelled
and he will have trouble persuading another insurer to take on his business
risks – because any new insurer must be informed of any previous claims AND
whether or not insurance has been withdrawn or declined in the past.
Insurance
is expensive and an annoyance, but it is your best friend when you need to make
a claim! Don’t be underinsured – and if
you are, either upgrade your cover or be prepared for a fight if you need to
make a claim.
This
article from the Telegraph online emphasises these points:
THE SIMPLE MISTAKE THAT CAN HALVE INSURANCE PAYOUTS:
A burgled
house or a flood can leave victims without possessions or an inhabitable home.
However, many of those involved are denied compensation by their home insurer,
which may claim that customers have undervalued their possessions on their
policy.
Firms claim
“underinsurance” to avoid paying victims a penny, the Financial Ombudsman
Service warned this week.
The
ombudsman said insurers in some cases gave misleading advice to customers when
they bought a policy, which led customers to underinsure their home and
contents.
Customers
are told they are underinsured only when they make a claim, by which time it is
too late. In one case, an insurer told a victim of jewellery theft that her
policy was void because she had failed to tell them the true value of her
possessions. Her jewellery was insured for up to £10,000 under a home contents
policy. However, the value of the jewellery stolen was closer to £100,000.
The insurer
paid nothing. The victim’s daughter said it had never occurred to her that
claiming less than the jewellery’s value would result in the policy being
voided. The ombudsman said she was “not properly warned about the consequences
of underinsurance” and ordered the insurer to pay £10,000 plus £200 for the
trouble caused.
Another
couple bought a £50,000 policy for their possessions. The following winter they
arrived home to find that the house had been flooded by a burst pipe. Instead
of letting the couple claim the maximum amount under their policy, the insurer
said it would pay only half.
The
insurer’s excuse: underinsurance. It said the couple had not disclosed the full
value of their contents so it was entitled to make a lower payment.
The couple
said this was outrageous, and the ombudsman agreed. The insurer was ordered to
pay £50,000 plus £300 for the distress caused.
A family
affected by winter flooding were told their insurer would cover only half of
the cost of damage to their six-bedroom house because they were underinsured.
This was
after the family had used the insurer’s own valuation calculator when they
renewed the policy. However, after the disaster, the loss adjuster said her
property had been substantially underinsured.
The
ombudsman said the valuation calculator that the family used was not suitable
for their property and told the insurer to pay the claim in full
Call me to discuss your
insurance needs on 0208 2550617 / 07768 865983
