The term underinsurance refers to the situation when something is insured for less than its current value. Underinsurance is a common issue when it comes to Home content insurance. When a person does not know the real value of any content of the home as well as the structure value and settles for whatever is offered while buying home insurance. This could lead to insufficient coverage at the time of claiming the policy. Having said that here’re some important pointers related to the concept of ‘underinsurance’ and its impact on the home insurance claiming process.
Characteristics of Underinsurance
The concept of underinsurance comes with the following features:
- If the policyholder is underinsured and the property is damaged in any way, the insurance payout may not be enough to cover the replacements or repair costs.
- Underinsurance means the policyholder does not have sufficient coverage for the loss or damage and may lead to financial hardship.
- Shopping around for competitive bids may save you some money as the rates for homeowner’s insurance are rising.
How to Avoid Home Underinsurance?
Now that you can comprehend the meaning of being underinsured in terms of home insurance, it is imperative to know how to avoid it. Here you go:
- Primary action would be checking the policy’s clauses especially the exclusions. Damages from earthquakes and floods are usually not included.
- If you experience a sharp rate increase, go for shopping. You may be able to find less expensive stuff that still provides enough coverage.
- If you wish to stay under your current insurer, you should ask for a quote with a higher deductible that maintains decent coverage.
- A higher deductible should mean lower premiums and maybe worth it if the reduction is significant.
How Does It Effect while Claiming?
India is the second-most underinsured country in the world. Underinsurance is a serious issue because it mirrors that the insurance holders have to pay the financial costs of any large claims out of their own pocket. Here’re the grounds where you can be considered as underinsured or the insurer may deny your claim request:
Underinsured Contents: Not so expensive and portable contents can also be underinsured. It happens when you only insure the expensive contents as you think you would have it with you anytime.
For example: Say you use a desktop which concludes of a screen, CPU, keyboard and a mouse. Now you get the most expensive part of that desktop insured which is a CPU and Screen. Then, you won’t get an insurance cover for the keyboard and mouse and the wires used to connect each other. That’s where you’ll be underinsured as you have not declared the combined cost of the whole set of your desktop but of the most expensive part of it like the CPU and Screen.
- Underinsured Renovating Cost: Similarly, when you only insure your building’s market price and not the re-build cost then you’ll lose the insurance amount you have put while re-building it or renovate it.
- Greedy Agents: Most of the time when you buy home insurance offline, your insurance agent tries to sell the products that can ensure them a hefty commission. Hence, they do not prioritize your profit. This may result to underinsurance.
- Wrong Plan: There are plenty of insurance policies available, however, not every plan is designed to meet your needs. If you end up buying the wrong plan, you’ll end up with an inadequate cover.
To Cut a Long Story Short!
Most of the people in India having home insurance are underinsured. The reason is they don’t know the actual value of their property or somehow can’t find out how much insurance they require. The principle of underinsurance comes into play when you have to bear a portion of the total loss as the insurer is not liable to cover it. Hence, it is very important to be careful while buying a home insurance policy to avoid being underinsurance. With multiple of options available in the market, it is quite obvious to get confused. So, the rule of thumb is always to consider the present market value of the property while buying home insurance. Don’t forget to compare different plans to get the best deal at an affordable price, and avoid being underinsured.