Underinsurance occurs when you insure your home for less than it is actually worth. This can happen when:
Due to inflation, the rebuild and the total cost of your contents is changing all the time. It is important to review the value of your contents and the rebuild cost of your home regularly to ensure that you are considering the effects of inflation.
Being underinsured means that in the event of a claim, your insurance payout may not be sufficient to cover the full extent of your loss. This shortfall can result in out-of-pocket expenses that could strain your financial resources. For homeowners, it could mean not having enough funds to rebuild or repair their property.
If you are underinsured it can significantly affect both the premium that you are paying, as well as the effectiveness of the cover you have purchased. Underinsurance can lead to:
· A reduced/partial settlement at claims stage due to the principle of average
· Insufficient financial compensation in the event of a total loss
The principle of average applies when you are underinsured. Your premium is based on the sums insured you have selected. If your sums insured is lower than the true value, your premium wouldn’t be reflective of the risk. This could result in your claim payment being reduced in proportion to the degree of underinsurance.
For example, if the total rebuild cost of your home is €1 million, and you have specified a buildings sums insured of €800,000, you are underinsured. Any claim you have will be reduced to 80% (800,000 / 1,000,000).
In the event of an incident leading to a claim that exceeds your sums insured, your payout will be limited to the sums insured which might not be enough to cover you for your full loss.
Seán has specified a buildings sums insured of €800,000. Unfortunately, his home burns down due to an electrical fire. Seán only then realises the true rebuild cost of his home is actually €1 million, resulting in his home being underinsured. At claims stage his insurer will pay out only €800,000. This would not be enough to rebuild his house to the same standard.
Aoife was away at the shops when her washing machine malfunctioned resulting in water damage to the home worth €100,000. She had specified a sums insured of €500,000, but the true rebuild cost of her home was €1,000,000. Aoife would only receive €50,000 for the water damage to her home based on the principal of average, as her claim payment would be reduced proportionately to the level of underinsurance. (50% = 500,000 / 1,000,000).
Seán has specified a buildings sums insured of €800,000. Unfortunately, his home burns down due to an electrical fire. Seán only then realises the true rebuild cost of his home is actually €1 million, resulting in his home being underinsured. At claims stage his insurer will pay out only €800,000. This would not be enough to rebuild his house to the same standard.
Aoife was away at the shops when her washing machine malfunctioned resulting in water damage to the home worth €100,000. She had specified a sums insured of €500,000, but the true rebuild cost of her home was €1,000,000. Aoife would only receive €50,000 for the water damage to her home based on the principal of average, as her claim payment would be reduced proportionately to the level of underinsurance. (50% = 500,000 / 1,000,000).
In order to protect yourself against underinsurance, it is important you carefully consider the sums insured you are selecting at both quote and renewal stage. You may also update your sums insured at any time. It is vitally important to ensure your sums insured adequately reflect the true rebuild cost of your buildings and the cost of replacing all of your contents at all times. Some things to protect yourself from underinsurance include:
If you’re an OUTsurance customer and are worried about underinsurance or have questions about your policy, contact our customer service team who will be happy to help.
In order to protect yourself against underinsurance, it is important you carefully consider the sums insured you are selecting at both quote and renewal stage. You may also update your sums insured at any time. It is vitally important to ensure your sums insured adequately reflect the true rebuild cost of your buildings and the cost of replacing all of your contents at all times. Some things to protect yourself from underinsurance include:
If you’re an OUTsurance customer and are worried about underinsurance or have questions about your policy, contact our customer service team who will be happy to help.
