When considering or purchasing Asset insurance, the most important decision you will make, is setting your sums insured (values). Over-insurance is simply a waste of your premiums, but underinsurance can have a devastating affect on your final settlement. As a simple example, you have a flood at your premises and there are repairs and replacement items totaling $25,000. If you have insured your asset for, say $100,000 and it should have been insured for $200,000, you are 50% underinsured and your claim will be reduced by that amount. In effect, you will receive only $12,500 and the balance you will need to find yourself. This is called the condition of ‘Average’ and is found in every asset policy in Kenya.
Unfortunately, underinsurance only usually comes to light when a policyholder has a claim, discovering to their detriment, the effect this has on their settlement. We often find instances where a policyholder will suffer after a loss due to their sums insured being inadequate.
Examples of this are:
- Where a specified item has not been valued for a while and remains on the schedule this may not have kept up with market values. The maximum payable is the sum insured.
- Where a policyholder has undertaken a lot of home improvement work without giving consideration to their Buildings sum insured.