Money Matters by Scott Woods

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Santa’s coming... Time to check the insurance policy!

At this time of year our homes are often filled with festive decorations, trees that scatter foot stabbing needles and gifts for loved ones and family.

This influx of presents becomes a target for thieves and therefore burglaries can also increase at this time of year.

Contrary to most peoples thoughts, these extra ‘contents’ which could amount to many hundreds of pounds in value, may not automatically be covered by your house insurance policy.

In 2011, the Telegraph estimated that up to one in four houses were underinsured.

Effectively this means that their buildings and/or contents value exceeds the insured amount and in the event of a claim, this could be very problematic and may result in financial losses to the policy holder.

While underestimating insurance sums assured may result in lower premiums being paid, the losses arising from a claim may far exceed any marginal savings in insurance costs.

For example, assume a house and its contents are insured against all risks for £250,000 and it is subsequently totally destroyed in a fire. Should the rebuild and replacement contents cost amount to £350,000 the homeowner may have to make up the difference of £100,000 from their own resources.

Additionally in the event of a ‘partial’ claim then the insurance company can pay out an ‘average’ figure taking into account the amount of underinsurance. For example, if a household has £20,000 worth of contents cover, but following a claim the total pre-claim contents were found to be worth £30,000, then some companies will only pay out 66.67 per cent of the claim value, ie £6,000 for a £9,000 loss.

More and more insurance companies are now offering ‘unlimited’ options for both buildings and contents, but whilst this may remove some of the underinsurance problems, you may end up paying for cover you do not need.

So it’s prudent to have a tot-up, often room by room, and have a policy that best meets your requirements.

Finally, with a large percentage of claims being made as the result of an accident, ie a paint spill, look to see if your policy includes this optional benefit.