Under-estimating value of item to be insured.

Alastair£££

I’ve heard of possible problems if you don’t accurately estimate or declare the value of an item when taking out insurance. E.g. actual value, say, £5,000. Estimated by you, (‘cause you don’t know any better!) £4,000. Any subsequent pay out on a claim will be reduced by £1000 because of your underestimate – so you only get £3,000 for something worth £5,000!

Has anyone else heard about this and if so can you explain it properly? What kind of insured item does it apply to?

dacouch

It is called "Under Insurance" or "Averaging"

An Insurer expects you to Insure your Building or Contents for the full amount so that you pay a premium that reflects the risk to them of a claim. There are people who have the opinion if they get broken into they will only have a few thousand of value stolen so Insure for say £10000. This is designed to prevent this.

For instance if you Insure you contents for an amount of £10000, when you have a largish claim the Insurer will calculate the actual value of your contents. If the value totals upto £15000 then they would work out you are under insured by 33%. They would then deduct the 33% from your claim.

It is therefore important that you Insure for the full amount (Preferably allow an amount over to allow for errors). When calculating your contents you should work it on the new price of all of your contents.

There can be exceptions, for instance if you have an inner limit of say £1500 for items away from the home and the item you are claiming for is say £1800 they do not always apply the Under Insurance. It is best however not to rely on this and Insure for the full amount.

pastra

If you have made an honest mistake in the value of total contents insured or the value of single higher value items then it is unlikely that you will not get the correct claim value (item value not insured value). The insurer should recalculate the premium with the correct sum insured and remove the additional premium from the value of the claim.
Honest mistakes should not be punished.

cogito

If you have made an honest mistake in the value of total contents insured or the value of single higher value items then it is unlikely that you will not get the correct claim value. The insurer should recalculate the premium with the correct sum insured and remove the additional premium from the value of the claim.
Honest mistakes should not be punished.

Nonsense.

It's really very simple. If you insure an item for £4000 that's worth £5000 and lose it, you will get the sum insured. You're still out of pocket but you don't get penalised twice.

The underinsurance clause comes into play in the event of a partial loss. It doesn't matter if underinsurance is deliberate or not.

pastra

cogito wrote: »

Nonsense.

It's really very simple. If you insure an item for £4000 that's worth £5000 and lose it, you will get the sum insured. You're still out of pocket but you don't get penalised twice.

The underinsurance clause comes into play in the event of a partial loss. It doesn't matter if underinsurance is deliberate or not.

With your example above you would get the value of the item £5000 - extra premium that it would have cost to insure the item at the correct value. In short you would get £5000

cogito

pastra wrote: »

With your example above you would get the value of the item £5000 - extra premium that it would have cost to insure the item at the correct value. In short you would get £5000

You really don't have a clue, do you? Are you trolling?

What bothers me is that someone might actually believe you.

pastra

cogito wrote: »

You really don't have a clue, do you? Are you trolling?

What bothers me is that someone might actually believe you.

This is not trolling and probably better informed than most of the worst case scenario scaremongering that you read on these forums.

mattymoo

Pastra - do you work for an insurer. If so, I'd like to insure my watch with you for £1,000.
When I lose it and discover it is actually worth £20,000 I am sure you will be happy to pay me £20,000 if I give you a little bit more premium. Do we have a deal?

Thought not.

pastra

mattymoo wrote: »

Pastra - do you work for an insurer. If so, I'd like to insure my watch with you for £1,000.
When I lose it and discover it is actually worth £20,000 I am sure you will be happy to pay me £20,000 if I give you a little bit more premium. Do we have a deal?

Thought not.

As you clearly knew the value of the item and decided to under insure probably to gain a better premium I would look to void the policy for mirepresentation, keeping your paid premium for compensation for the time and money looking into the fruadulant attempt at a claim.


I assume you dont work for an insurance company

mattymoo

pastra wrote: »

I assume you dont work for an insurance company

Yes and No - a Lloyd's sydicate.

I know I took the argument to an extreme - £1k to £20k but the question is where do you draw the line. If it was insured at £10k but worth £15k due to a sudden market fluctuation have I committed fraud or would you let me pay the additional premium for £5k cover and pay out?

I know most insurers would not - and simply pay the £10k if no fraud suspected.

I appreciate you might not wish to say who you work for but can you describe them - eg. volume insurer, scheme or high net worth?

dacouch

How can you declare a policy (contract) void and then retain the premium?