There are hundreds of different home insurance policies and if the adverts are to be believed, picking one is easy. Answer the questions about the house, its security, and your claims history. Pick a sum insured that seems high enough and add on any optional covers that you want. Find the lowest price (from a company you like the look of) and away you go… simple! Except it isn’t.
While it is common knowledge that failing to accurately disclose information such as past claims or security could result in a claim not being paid, selecting a policy with the wrong cover levels can result in the same outcome. It is easy to make this mistake without even realising, and doing so can result in your insurer declining your claim when you need their help most.
How can this happen?
Some of the most common types of home insurance products are what is often referred to as ‘blanket’ cover or a ‘bedroom rated’ policy. These provide a set sum insured, for example contents cover of ‘up to’ £75,000 or £100,000 and buildings cover of ‘up to’ £500,000 or £1million… a few will even say ‘unlimited’.
Whilst this is intended to make it easier to buy insurance, it can result in a false sense of security. Rather than spending the time assessing the true replacement value of all the contents in their homes or having an assessment of the rebuild value, there can be a tendency for policy holders to simply go with the standard figures, often because…
- The sum insured being offered seems high enough and even if it isn’t, it’s a sum that they would be happy to receive in the event of major claim.
- The likelihood of everything being destroyed is low and they’d never replace everything in the house anyway, so they’re willing to take the chance of being underinsured rather than pay a higher premium.
Whilst this seems like a logical approach to take, it is not how an insurance contract works. There are some key points that are often overlooked, which can result in the policy being invalid and claims not being paid….
You must insure for the full replacement value of everything in your home, even items in the garage or loft that you wouldn’t replace. This value must be based on the cost to buy everything again at the current retail price (or in the case of art, antiques or collectables – the dealer price, not auction or probate value). If you do not insure on this basis and the insurer determines that this was done ‘recklessly’ or intentionally, or if they wouldn’t have offered you cover in the first place had they been aware of the true value of your possessions, then you could face difficulties in making a claim or worse, the entire policy could be null and void.
High Risk Items/Valuables
Regardless of how large the total sum insured is for contents, even if it is ‘unlimited’, there will be a maximum limit on the total value of items in the house that the insurer defines as ‘high risk’ or ‘valuables’; and typically this will be in the region of £25,000 to £35,000. What is included in this definition will vary from insurer to insurer, but it will certainly include jewellery and watches and is also likely to include artworks, items made of a precious metal (cutlery sets, photo frames etc.) and camera equipment. Some policies will go further and include antiques and possibly even televisions, laptops, tablets and mobile phones. Depending on how wide the definition is, it can be very easy to exceed this limit without even realising and consequently be in breach of contract, meaning your policy could be declared null and void.
For your buildings cover you are required to insure the full cost to reinstate your house and other permanent features or structures. As well as labour and materials, this must include fees for demolition, site clearance, architects, planning permission and other associated costs. If you are underinsured, which is a common occurrence given the dramatic increase in building costs of late, then making a claim could be problematic or potentially even impossible, particularly if the true value exceeds the maximum amount the insurer would have accepted.
How do I avoid this?
If you haven’t added up the total value of your contents for some years, make this a priority as it is likely to be higher than you think. Carpets, curtains, clothing, shoes, beds, mattresses and garage items are all possessions that are often overlooked or undervalued. You may not have designer brands and individual items of high value, but it all adds up, and in a reasonably sized home they could be worth many tens of thousands of pounds. Don’t forget to add on items that obviously need to be included such as jewellery, watches, computers, tablets, sofas, armchairs, dining tables and other expensive objects.
Make sure you understand the limit for high risk items/valuables and what the insurer includes under this description. Review the replacement cost of all the items you own that would fall under this category and be certain you are within the limit. If you own a luxury watch this is one of the first things to check, as our recent article explains.
If you exceed any of the limits of the policy, make sure you tell your insurer! It might result in a higher premium and additional policy clauses or maybe the insurer will tell you you’re not eligible for the policy, but better this than taking a risk and finding that you aren’t insured.
If your insurer will provide the cover you need, but due to the replacement value of your ‘high risk items’ you are having to specifically itemise a lot of individual pieces, or there are onerous clauses around locks, alarms or needing a safe; moving to a higher-grade policy may work well for you. Whilst the premium could be higher, the terms will be more accommodating, with less onus on specifying items, greater flexibility on security, less stress, and more freedom.
If in doubt, call us. As partner to the BCA for general insurance, we’re here to help.
We also provide traditional home insurance, so even if you feel our Private Client services are not for you, you can contact us on telephone 01823 250700.
Lloyd & Whyte Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 03686765. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. Calls may be recorded for use in quality management, training and customer support.