What is underinsurance?
This is when the insurance cover is less than the actual cost of repairing damage
Underinsurance is a term used to describe a situation where the insurance coverage is insufficient to cover the actual cost of repairing damage or making up for loss if there is an unforeseen event, such as fire or a natural disaster.
If you insure your property for less than its rebuild value, you could be left in financial turmoil in the event of a fire, flood or other serious loss.
This is because the property would be ‘underinsured’, and if you needed to make a claim insurers would not pay out the full amount.
As a landlord, it’s your responsibility to calculate and declare the rebuild cost of your rental property and make sure that it’s insured for the correct amount.
The rebuild cost of your property is the maximum amount your insurer will pay out if you need to make a claim.
Landlords who underinsure their properties could potentially lose out on thousands of pounds worth of claims that might have been avoided.
How would you cope if you needed to find £25,000 for a £50,000 claim?
If you have a claim for £25,000 and the loss assessor judges that you are actually underinsured by 50%, the insurance company would only pay 50% of the claim.
This means you would only get £12,500 back, and you would need to deal with the shortfall out of your own pocket.
On a smaller claim you may be able to get around it, but on a bigger claim, you may find yourself in a position where you would be unable to afford to get your property rebuilt.
“The most important thing when it comes to insuring your property, is that the premium is based on the rebuild cost, not what you paid for the property or the current market value.”
