Under-insurance can have dramatic consequences for your charity, church or organisation, as it can leave you without sufficient cover in the event that a claim is made under the policy.
Under-insurance can leave you severely out of pocket in the event of a claim.
What is under-insurance?
Under-insurance arises when an organisation insures something for less than its value.
What are the risks of being underinsured?
If your current insurance does not reflect the true value of your buildings, contents, etc., any claim settlement may not be enough to cover your loss, making an already stressful experience much worse.
The Average Clause: What could happen in the event of a claim?
In the event of a claim the insurers could enforce the “Average Clause”. Let’s say the value of your contents is £100,000 but you are only insured for £75,000, so the insurance company are only covering 75% of the true value, and you are effectively self-insuring the other 25%. This means in the event of any claim, you would be responsible for paying your 25% of the liability. As an example you need to make a claim for £20,000, even though this is well under the £75,000 limit you’re insured for, as you’re under-insured by 25% your insurer will only pay you £15,000 which means you’ll have to pay £5,000 out of your pocket.
The worst-case scenario is that your insurer uses underinsurance as grounds to void your policy completely, paying you nothing.
What to do to protect yourself against under-insurance?
First and foremost, insure the full value of your property. You must remember that the value of your stock could vary considerably and your business turnover may increase during the year, therefore you must remember to inform your insurer of any changes. Do not forget that under-insuring your building and possessions may seem a reasonably sensible cost-cutting measure, but it can lead to major problems when it comes to making a claim.
If you have any questions please feel free to contact one of our friendly members of staff on 01206 760780 or email us at [email protected]