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Questions to ask when insuring assets to avoid unexpected losses

One of the consequences of trying to keep insurance costs down by not insuring the correct amount is underinsurance.

15/07/2024 · 3 minute read

Trying to save money could cost you

No one likes to spend more money than they have to, especially when it comes to insurance. But, insurance is there to protect you against unforeseen events, so reducing your cover to lower your insurance premiums could cost you more in the long run. One of the consequences of trying to keep insurance costs down by not insuring the correct amount is underinsurance.

What is underinsurance?

When asked ‘what is the value of the property?’ people may assume this refers to the market value of the property. In reality, this needs to reflect what it would cost you to rebuild your property at the time you arrange or renew your policy. Valuations do not necessarily provide a reinstatement cost for insurance purposes and often refer only to the structure and don’t include the surrounding areas of the property, such as car parks, outbuildings or trees or mirror the definition of buildings within the policy document.

This doesn’t just apply should you need to completely rebuild your property. It is a common misconception that if the cost of a claim is below the total sum insured (partial loss), the full amount being claimed will be paid. This is not the case. Should you need to make a claim, and your property is found to be underinsured, your insurance company could apply the condition of ‘average’ and would only pay out the percentage of your property value represented on your policy. In the worst case scenario, your insurer could void cover on the grounds of misrepresentation.

What is Warranty and Exclusions?

It is extremely important to carefully understand the warranties and exclusions in an insurance policy. This knowledge allows you to make informed decisions about your insurance coverage and avoid any surprises or misunderstandings later on.

  • Identify potential gaps in cover: By reviewing the exclusions, you can identify situations or risks that are not covered by the policy. This allows you to seek additional coverage if needed.
  • Avoid claim denials: If you are aware of the specific warranties or circumstances that could result in denial of a claim, you can take appropriate actions to prevent those situations from occurring or seek alternative coverage options.
  • Choosing the right product: reviewing warranties and exclusions also helps you compare different insurance policies. By understanding the differences in coverage limitations, you can make an informed decision when choosing between multiple insurance options, ensuring that you select the policy that best suits your needs and provides the desired level of protection.

Questions to ask yourself to help prevent underinsurance

  • Did you use the market value of your property as the insurance value, or the reinstatement cost?
  • Do you have a bespoke insurance reinstatement valuation?
  • Have you reviewed the value of your property in the last two years?
  • Have you had any extensions or alterations made to your property since you last had your property valued?
  • Would there be additional complications to repairing your building? Does your insurance value fall in line with the buildings description within your policy?
  • Does your building have any technological or material specifications, such as solar panels or a unique construction material that would make it more expensive to repair?
  • Is the building constructed of modern methods of construction such as modular?

Speak to our Marsh experts today on how we can help you protect your business.

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