How the rising cost of living affects your insurance policy

Why are you more at risk?

Right now, inflation is high and unstable, which means there is a greater chance that you may not have enough protection if you need to make a claim for example:

  • We have seen significant increases in the replacement cost of contents, personal belongings and valuables.
  • Business clients are affected by rising costs for equipment, machinery, and stock. Unfortunately, these costs are increasing, which means it’s more expensive for businesses to buy them and it has also been taking longer than usual to obtain specific materials and equipment.

What is underinsurance?

Imagine you own a home and have home insurance to protect it from damage or loss. If you haven’t updated your policy in line with rising inflation, if something were to happen to your home such as a fire, the cost to repair or rebuild it could be more than your insurance policy covers.

This would mean you are underinsured and would have to pay some of the repair costs out of your own pocket. It’s therefore imperative that you regularly review your insurance coverage to make sure it is enough to protect your home and to avoid being underinsured.

If your property is underinsured, your insurance company may also apply the “average condition”. Average is a policy condition contained in property damage-based policies to protect the insurer against under insurance by the insured.

Underinsurance is where the insured does not insure the risk for the correct amount, giving the insurer a greater exposure to a claim than the premium paid represents.

The Average condition states that the insurer can reduce a claim proportionately to the amount of under insurance for example, if an item of property is insured for only 50% of its insurable value only 50% of the amount claimed will be paid by your insurers.

If there is very significant under insurance, the insurer may consider this to be a non-disclosure and not pay a claim in its entirety rather than apply Average.

What are Insurers doing about inflation?

To make sure you are protected against inflation most Insurers are increasing the amount of index-linking that is automatically applied to your policy, and how often they review it.

Please take a moment to consider if the amount of index linking applied by your Insurer is enough for your needs. Remember that these increases apply to the figures you have provided to us, so if you haven’t reviewed these amounts in a while, we encourage you to do so now.

What can you do

As an insurance broker, we can’t tell you what your sums insured should be, but we can point you in the right direction to get the guidance you need. Have a look at our articles on how much business and home insurance is enough to help you determine the right amount of coverage for your needs:

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