We all know what average means in real life but in insurance terms it is something you all should certainly know about. This post is extremely relevant to my last one (the pitfalls of using comparison sites) and to anyone who may be getting their insurances direct from the internet or over the phone with an insurer.
Whilst you might think that phoning an insurer directly might get you speaking to a real person the chances are that they are in an administrative role and are simply clicking / typing the same questions that you might be had you used the internet. Whilst I am sure some take pride in their job the chances of getting any actual ‘advice’ are slim.
So whats the point I am getting to… well… here goes. When you are happily plugging away buying your home or shop insurance on the internet and it gets to the bit that asks how much you want to insure your contents for what do you do:
A) Guess the total?
B) Decide what the most likely loss is and put that?
C) Logically go room to room seeking a decent estimate / consult your accounts?
I would imagine no-one using the internet to purchase their insurance goes for option C. So your next question is why does this matter? Well it matters because if you guess and find yourself underinsured you will be subject to ‘average’. Similarly if you decide what the likely loss is (rather than the total loss) then once again you will be staring at the ‘average’ clause.
What the average clause really means (and it will be present on 99.9% of policies where property is involved) is that the insurers want to collect an appropriate premium for the risk they are insuring. This means that they apply a clause to encourage all sums insured to represent a maximum possible loss. Failure to set the sums insured at these levels results in your payout being prejudiced by the same amount you are under insured.
For example –
You have a total contents value of £60,000
You only insure £30,000 thinking that you wont ever have a claim resulting in a loss which goes above this limit – I mean what are the chances???
An ingress of water damages £10,000 worth of your contents.
The insurers look at the sums insured you have selected and assess the total value of your contents. It is clear you are at least 50% under-isured so they take 50% away from the claims payment.
You only get £5,000 (minus your policy excess) towards your loss meaning you are also £5,000 out of pocket.
I am sure, having read the example above that you appreciate how important it is to make sure that you are insuring your property for the maximum possible loss. If you have not had advice to this effect from your insurance provider / broker then I am sure you may be inclined to consider a move to a broker who is keen to give you such advice as this and who passionately cares about protecting your business. (I almost want to use a cheesy line like ‘your business is our business’ or perhaps the other way around).
Talk to us.
Alistair
