Understand underinsurance in home contents insurance. Learn how insuring for too little can cost you in a claim and how to avoid it.
What Is Underinsurance?
Underinsurance occurs when your sum insured is less than the total value of your belongings. For example, if your contents are worth $60,000 but you only insure for $45,000, you're underinsured by $15,000.
How Underinsurance Affects Your Claim
Many insurers use "average" or "proportionate" claims settlement if you're underinsured. If you insured for 75% of actual value and have a claim, you'll only receive 75% of the loss amount.
Example: Your contents are worth $60,000. You insured for $45,000. You have a $10,000 claim. Instead of receiving $10,000, you might receive only $7,500.
Why Underinsurance Happens
- Underestimating the value of belongings
- Forgetting items in less visible places
- Not accounting for inflation and price increases
- Choosing too-low a sum insured to save on premiums
- Never reviewing coverage as possessions accumulate
How To Avoid Underinsurance
- Do a complete room-by-room inventory
- Check wardrobes, cupboards, sheds, and garages
- Research current replacement prices (not original purchase prices)
- Add 10-15% for items you might have forgotten
- Review annually, especially after major purchases
- Update your sum insured if your circumstances change
Taking Inventory
The most effective way to avoid underinsurance is a detailed inventory. Write down every item and its replacement value. Take photos. Update annually. This exercise often reveals how much more you own than you thought.
The Cost Of Saving
Underinsuring to save a few dollars per month isn't worth the risk. If you have a claim, you could lose thousands. Ensure your sum insured reflects your actual belongings.
Be Properly Insured
Proper sum insured means proper protection. Take time to calculate correctly, and you'll have genuine peace of mind knowing you're covered for the full value of your belongings.
