Under Insurance
Underinsurance is when the value you have insured your property is not enough to cover the value of the items you are insuring and can occur in any type of insurance policy, though it is more commonly reported in Home & Contents policies as well as Commercial Building and Contents including Stock policies.
Business policies have one of the highest levels of under-insurance and it is estimated that over 70% of policies have some form of under insurance.
If you are underinsured, it means you have paid for an insurance policy that doesn’t cover the full cost of your loss or the financial impact it could have on you and your family or business.
Insurance contracts contain and average clause that can reduce the sum paid out by a certain percentage when the sum insured is less than the value of the insured object. Unfortunately, most people don’t discover the effect of an averages clause until they come to make a claim and by then, it’s too late.
For instance, if you insure your contents for 25 per cent less than their true value and lodge a $30,000 claim, the insurer may reduce your claim by $7500.
The same would apply if you insured your building for 30 per cent less that its replacement value and lodged a $300,000 claim. The insurer could reduce your claim by $75,000
Taking the time to make sure you have enough insurance and knowing what’s covered means you know where you stand in the event of a loss.
If you would like to discuss this further, please contact our office.
