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Valentine’s Day – Are your contents underinsured?

At a glance

  • With some households having spent hundreds, if not thousands of pounds on gifts during the Valentine’s period, the risk of underinsured contents insurance policies can increase
  • In 2018, the British public spent an estimated £650m on Valentine’s gifts
  • Jewellery and clothing are two of the top purchases made by the British public ahead of the romantic day

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By reading this article, and correctly answering the three questions underneath, you will have achieved the following learning outcome: Identify the most common causes of underinsurance.

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With some households having spent hundreds, if not thousands of pounds on gifts during the Valentine’s period, the risk of underinsured contents insurance policies can increase.

In 2018, the British public spent an estimated £650m on Valentine’s gifts. Jewellery and clothing being two of the top purchases made by the British public ahead of the romantic day.

With UK Google searches for engagement rings seeing a spike between December and February, it’s a time of year that could see households underinsured with their new and significant purchases.

Zurich’s approach to the Insurance Act explained

The Insurance Act 2015 introduced a ‘duty of fair presentation’, which clarified what an insured must disclose to an insurer and what an insurer needs to know about its insured.

Under the Act, if an insured’s failure to make a fair presentation is not deliberate or reckless and the insurer would have charged additional premium if it had been aware of the relevant material facts, the insurer has the right to reduce the amount to be paid on any claim during the period of cover in proportion to the amount of premium that would have been charged.

Zurich has ‘opted out’ of the proportionate reduction of claim remedy under the Act. Rather than reducing a claim proportionally, Zurich has instead decided to charge the additional premium that would have been charged, had all the relevant material facts been known, and pay any claim(s) in full.

Zurich believes that this additional premium approach should, in most situations, be more favourable to customers when compared to the proportional settlement remedy under the Act.

Different insurers have different ways of dealing with underinsurance (see boxout for an explanation of Zurich’s approach). For example, it could lead to policyholders having their claims settlement reduced, or them having to pay an additional premium. In some of the more extreme circumstances, it could lead to a claim being outright rejected.

However, by following a few simple steps, customers can avoid the risk of major underinsurance.

Correctly estimate the value of your contents

A common issue with household underinsurance is that homeowners underestimate the value of their possessions. It’s important to remember that not only should high value items be considered, but also the cost of replacing staple items in the home.

With most everyday items, you can find a price online. However, for the more bespoke and high-value items, it is worth getting a professional valuation done. For these high-value items, most homeowners do not get professional valuations or may have never had them valued, leaving them vulnerable to significant underinsurance.

For your everyday items, a good way of ensuring nothing has been missed, is to go from room to room and list everything.

Add expensive new purchases to your policy

With romance in the air, the Valentine’s period sees the purchase of expensive clothing and jewellery increase, and with it the potential to be underinsured. It’s important that these newly acquired items get added to policies as soon as possible.

If these newly acquired items aren’t listed on a policy, should any sort of loss occur, these may not be accounted for when processing the claim. It is worth highlighting that there is no need to list every single purchase, just those of higher value that would have a considerate impact on the policyholder’s insurance. This is because the insurer may need to increase contents sum insured to reflect the new and increased value of the household possessions.

Get regular valuations

For high values items it’s necessary to get regular professional valuations. Even if a policyholder hasn’t made any major purchases, the values of these items is always changing.

In particular, high value items like jewellery are vulnerable to price fluctuations and underinsurance. External factors, such as gold and silver value fluctuations, for example, can quickly change the value of jewellery. Thus potentially leaving policyholders over or underinsured.

Another point to consider is that jewellery can often be purchased abroad, where prices can be significantly cheaper than the equivalent in the UK. Therefore making it much more expensive to replace in the UK.

Check your policy details

It’s imperative that customers understand their policies and are clear on the detail of their contents insurance policies, including any exclusions or limits that may exist.

Inner policy limits are significant. Many policies will specify a limit for valuables and each insurer may use a different definition for ‘valuables’. Understanding these definitions will allow policyholders to make decisions on how to correctly assess what their suitable sums insured should be.

Policyholders should also be clear on whether they own any items for which they may be required to provide evidence of ownership or value in the event of a claim. Many insurers will require evidence in the form of a professional valuation for any item valued over £5,000, although policies should be checked to see what the insurer has specified.

There can be many reasons for households becoming underinsured, however regular and accurate valuations and an understanding of basic policy details will go a long way towards minimising the risk.

For more information on the issues discussed in this article, please get in touch with your local Zurich contact.

Image © Getty

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