Underinsurance is a growing problem in general but particularly within the UK property owning market. The unwary can be left with a bill for thousands of pounds should the worst happen to them.

So what exactly is Underinsurance?
To put it simply this is where you insure your property for an amount that is less than it would cost to rebuild it.

Example
Mr Smith buys a property and decides to insure it for £100,000. Months later he is unfortunate enough to suffer a substantial fire causing £50,000 worth of damage. Mr Smith submits a claim, which the insurer examines and determines that the correct sum to rebuild the property is actually £200,000. This would leave Mr Smith underinsured by fifty per cent.

Mr Smith believes that he will be adequately covered as he insured for a total amount of £100,000 and the cost of the repairs will only come to £50,000. However, Mr Smith has forgotten that most insurers apply an Average clause to policies.

So how does the Average Clause affect me?
Generally if you are underinsured your insurer will only pay out for the proportion you have insured for. So in the above example, as Mr Smith has underinsured by 50%, his insurer would only pay for 50% of his £50,000 claim. This would give Mr Smith a payout of £25,000, leaving an amount of £25,000 that he would have to pay himself!

PLEASE NOTE that if an insurer suspects deliberate underinsurance you could find they will decline to pay the whole claim. It is for this reason that a property owner is very unwise in deliberately declaring a lower value for their property in order to try and save on the premium they pay.

These are some of the warning signs you should be aware of:-

1. It has been some time since a full survey/valuation has been carried out.
Many people invest in a property having never had a full professional valuation carried out by a specialist surveyor.

2. The property has been constructed of stone.
Stone is far more expensive to replace due to the specialist nature of the materials and workmanship involved. The time it can take to repair/replace can also be considerably longer.

3. The property is listed.
Properties are usually listed because they are of special historical and/or architectural interest. Should there be a claim e.g. fire or storm, you will have to consult with the planning authorities or other specialist agencies such as English Heritage to agree a schedule of works. The repairs will very often involve specialist craftsmen such as a stonemason

4. Renovation and/or extension of the property.
Did you carry out extensive renovations or extend the property after you purchased it? Many persons carrying out these works forget to amend their sums insured.

For help or advice on sums insured you can visit the Association of British Insurers website at http://abi.bcis.co.uk/home.aspx for general advice on properties of a standard construction.
Please note that you should consult a qualified surveyor should you suspect any of the above warning signs apply to your property.