Most insurance policies are renewed every year, which means many people simply forget about them after the initial set up phase. This can be a costly mistake. If you find yourself having to claim five years down the line, and you haven’t kept track of your policy and coverage from year to year, you could be in for a nasty surprise. Research has shown that around 40% of consumers are under-insured. The concept of “new for old” is not fully understood by consumers when establishing sums insured. Checking any adjustments to your policies – and whether your sum insured is still adequate – is a crucial responsibility that falls on you as the policyholder. A good insurance adviser will initiate a review process with you annually and discuss the revised terms and conditions imposed by the insurers or seek alternative quotations if needed.
Five questions to consider when reviewing your insurance
1. Has your life stage changed? Have any of your life circumstances changed? Marriage, divorce, having a baby, or buying a new home can all affect your insurance coverage requirement and may mean that you need to adjust your policies. Be sure to keep your insurance adviser informed of any changes in your circumstances so they can make recommendations based on your new requirements.
2. Is your car insurance up to date? Your insurer will adjust your car’s value every year since it is a depreciating asset (unless it’s a vintage or collectable vehicle). This means the sum insured will decrease, unless you have an agreed value policy which is based on the initial purchase price and not the depreciated value. In either case, the cost of replacing your car can be budget-breaking if you are not adequately insured. Check your policy requirements carefully every year. Don’t forget the interest payable to a finance house and after-market vehicle extras.
3. Have you added new valuables to your household contents cover? The replacement value of your household contents is likely to change from year to year and should be updated in your policy. Some items, such as electronics, may have decreased in value over time, whereas others, such as art or furniture, may have increased. Remember, you need to be thinking about the cost of replacing these items, not the amount you originally paid for them. Most people add items to their household from year to year – any new items need to be added to the policy, including any valuable gifts received.
4. Is your homeowners’ insurance adequate? Your house should be insured at the full value it would cost to replace. This is calculated based on current building costs including professional fees, which increase from year to year. If you’ve done any renovations or home improvements that have increased the value of your home, you’ll need to notify your insurer. Keep in mind that mortgage bond insurance is not necessarily sufficient as it simply increases with inflation, whereas building costs increase at a rate that exceeds inflation.
5. Is your business owners’ insurance up to date? As a business owner, you know the ins and outs of your operations best. But you need to consider more than the overall replacement value of your property, buildings, equipment and average level of stock. Also think of factors that may not necessarily be top of mind: escalating building costs, rising replacement costs of imported stock, peak period stock levels (when you might need to adjust your cover) and the costs of rubble removal if your premises are damaged by fire or floods. Business developments such as opening new premises, storing stock and materials in warehouses, changing your business occupation, employing new drivers, extending geographical locations for transport, importing machinery, all have an impact on the structure of your insurance policy and the values to be insured.
Resist the temptation to cut costs
As consumers across the country are feeling the pinch of a sluggish economy, many will be looking for ways to cut costs. As a grudge purchase, insurance policies are often the first to be pushed aside to reduce monthly expenses. This is a big gamble that could land you in dire financial straits if anything goes wrong. Rather speak to your insurance adviser about any ways to reduce your premiums without leaving yourself entirely exposed.
Bertus Visser is chief executive of distribution, PSG Insure