• August 4, 2023

Understanding Underinsurance

There are many terms in insurance that can be easily misunderstood, especially if you’re an industry newcomer. This blog will explore ‘underinsurance’, leaving you with a greater understanding of the word and how to use it going forward.

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Insurance provides much needed financial security to people, homes, businesses, and the goods associated. The cover in place must be accurate and extensive enough to ensure all assets are considered at the correct value with suitable cover limits. Underinsurance, also referred to as an ‘insurance gap’, occurs when the policy cover is lesser in value than the subject matter it’s intending to cover.

The person who agrees the policy is referred to as the policyholder. The cover value is assessed by the sum insured; this determines the amount that the policyholder would receive in the event of a claim to cover damage or otherwise.

Why would I be underinsured?

A common reason for underinsurance is insuring the subject at market value rather than considering the total value involved in the event of a claim. A good way to understand this is by referring to property insurance. As a homeowner, the value of your property is likely to fluctuate over time. This may happen as a result of changes you make intentionally such as extensions or economic changes like inflation which are outside of your control.

Is your business underinsured?

The uncertainty of recent years has seen an increase is businesses being underinsured, particularly SMEs. In January of this year, Aviva reported that half of UK businesses are likely to be underinsured. 99.9% of private businesses in the UK are SMEs yet 44% of these don’t have any insurance.

Here are some tips to help you avoid underinsurance:

  • Obtain an accurate valuation
  • Check your policy to understand the inclusions and exclusions of your cover
  • Review your cover frequently, especially following any changes to the policy subject that may alter its value
  • Speak to an expert

Our specialists at Clear are here to answer your concerns or queries, and provide suitable guidance to ensure your insurance policy cover is sufficient. Let’s work together to close the insurance gap.

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