My Insurance Company Won't Pay All Of My Claim

If you have been in the unfortunate position of having your insurance company refuse to pay your entire claim you will realise that it always pays to get it right the first time, and if you have been fortunate enough to have never been in this position you really need to make sure it stays that way.

So, let's say that you have made a claim and your insurance company have agreed to pay, but not for all of it. The reason, they say is that you are under insured, but your opinion of course is that you actually insured the item for £10, 000 and, okay, you now know that it would actually cost £15, 000 to replace it but as far as you are concerned you will accept the £10, 000 because that is what you have insured for, right?

Well, no actually, although you might think that's how it works and you would certainly not be on your own, the facts are a little different.

Let's look at a simple scenario...

And to start, if you have been down this route before do you remember someone mentioning something about "average clause" to you when you were having your rant about not getting your full amount? Well, "average" isn't about something that's sort of "in the middle" when it comes to insurance. Let me explain...

Sitting comfy? Here we go. When you take out an insurance policy you have decided you need to insure some specific item and you take out a policy, but, without getting too technical, you are not actually insuring the item itself, in fact it's your interest or the company's interest in that item that is being insured. I need to clarify this don't I, well in order to make things easier to understand let's say it's your home or perhaps a piece of machinery used for business that is being insured (the principle is the same). We, as the insurance provider, will have to insure the item for the full "reinstatement" cost, that's the replacement cost "as new on a like-for-like-basis", which means you get back the same item without betterment.

Now for a very simple example, amounts are rounded for simplicity: you insure your house for £100, 000, your roof blows off in a storm and the replacement of the roof will cost £3, 000. Nice Mr Loss Adjuster comes along and he has no problem with the replacement cost of your roof at £3, 000. However, because he is very good at his job and has been around the block a few times, he knows a thing or two about houses and rebuild costs and he tells you that the rebuild cost of your home is actually £200, 000. This means that you are 50% under insured and as a result your £1500 cheque is in the post. You have only put 50% in and 50% is what you will be getting back out.

Oh dear, and what's worse is that this could be your business premises, what do you do then? You have a fire which all but destroys your premises, the consequences could be grim and if the shortfall is so much that you have to raise further capital you don't really have too many assets left for security, you cannot trade due to the fact that you have no premises, and while "business interruption" may be there to assist you in the interim there would of course be issues here as well. It would be best to have been properly prepared in the first place.

Businesses are somewhat different to private property, although the principles are very much the same, business interruption insurance, stock, machinery and plant all have the same insurance practice applied - Average!

This list could be very long, and while in our example it has been applied to your premises, you need to consider the same with all your machinery, stock, fixtures, fittings, in fact most things where you have material items that may have to be replaced. So here are some rules of thumb on how to be correctly insured when it comes to your buildings:

• Do not base your sum insured on the sale or purchase cost, it's very unlikely that this figure is going to be even close to the actual figure.
• Do not take a guess at the rebuild costs, unless you are a surveyor it's likely that you will be wrong. It's worth investing in the price of a proper valuation - they know better than you.
• Do not assume that your builder mate is correct, he may be well meaning but he is probably going to be well under or over the correct figure.
• Do employ the services of a qualified surveyor - they have a very high probability of being right (after all, it's their job)
• Do speak with the surveyor that handled the purchase of the property, they may not have indicated a "reinstatement" cost in the report, but they will be able to do that for you as they will more than likely have the full details of the premises.

Although in this case the above do's and don'ts refer to bricks and mortar as such, this example pretty much applies to everything you may want to insure (yes alright there are some things that it doesn't apply to, but we don't want to get that deep just now). Property has its specific valuation needs, but you will also have to keep aware of the replacement value of your other assets. For example, try to make sure that the machinery you use for your business is kept up to date.

Machinery very quickly becomes obsolete and it will be no time at all before that state-of-the-art three-widget, reciprocating gyro thingy is superseded by a four-widget reciprocating gyro thingy - know your machinery, know the reinstatement costs and keep your sums assured up to date. This applies to your computers, printers, stocks of materials, cameras, furniture, in fact everything that you use to earn your living that will have to be replaced if it is destroyed in a fire or a flood.

Insuring for twice the amount will certainly not get you twice the payout; they cottoned on to that one back in the 18th century.