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The risk of underinsuring: a philosophical perspective

Getting your ‘sums insured’ accurate may seem like an inconsequential task to some, however, this is extremely important and can have a significant impact on any future claim settlement.

Often your sums insured for physical assets such as buildings, plant and machinery will be index linked to afford some protection against underinsurance. This is to account for general inflation, rising building costs and professional fees amongst other market increases. Whilst this is a useful tool to combat underinsurance attention should be paid to the underlying values that are selected.

Particular attention should be paid to buildings and high-valued contents items and regular valuations and reviews should be undertaken to ensure that the full reinstatement values are adequate. In the event they are not, insurers will proportionately reduce any claims payments by the amount of underinsurance. It is important to note that the responsibility for accurate values is the policyholders and the policyholders alone. Neither insurers nor brokers are professional valuers.

Of course the sum insured reflects the premium to be paid and it may be tempting to try and reduce costs by reducing the amount to be insured but the quotation by Victorian artist and philosopher, John Ruskin, springs to mind…


“It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.”

Giving due consideration to asset values is definitely time well spent.

By Molly White Cert CIICommercial Account Handler

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