Here's something you should NOT do when choosing your coverage
21 January 2020| Last updated on 23 January 2020
In the middle of selecting home insurance coverage? Here's something to keep in mind.
When choosing your home insurance policy - be it building, contents or personal belongings - you're priority is no doubt to ensure your coverage includes most, if not all, of your valuables.
Some, if not all insurance providers, will require you to list or specify items above a disclosed limit a.k.a. a Single Article Limit (SAL). It is only if the value of a single item exceeds this amount that you're advised to list it and provide a description.
A SAL is a maximum amount an insurer will pay for a single valuable item in the event of a claim. If you own a piece of jewellery worth AED 25,000, but the company's SAL is AED 10,000, then your insurance would only cover the latter amount at the time of a claim if the jewellery item is not listed when activating your policy.
With this in mind, it is advisable to avoid under-insuring the overall value of your things.
What does under insurance mean?
Underinsurance is when the overall value of the things you own or the total sum insured is significantly lower than the actual value.
For instance, it's the act of valuing your contents' sum insured as AED 100,000 when it should actually be valued at AED 250,000. As a result, you're effectively undervaluing and underinsuring your home contents.
While the lower value does help to bring down the premium, what most people don't realise is that - whether accidentally or on purpose - they've just substituted the complete peace of mind that comes with purchasing insurance, by taking on that risk.
If you do undervalue your contents at AED 100,000 (the agreed sum insured in your policy), in the event of a fire which resulted in the total loss of your contents, while you should have been covered for the agreed sum insured of your contents, insurers will pay even lesser than the agreed sum due to the underinsurance clause on all home insurance policy wordings.
Logically, before paying out claims, investigations are conducted and supporting documents are sought before paying out a claim, so when it’s verified during the claim process that your home contents is actually valued at a much higher amount than the agreed sum insured, the claim amount owed to you is reduced in proportion.
It's important to remember...
You risk losing out on a much bigger claim amount payable when you compare it to the few hundred dirhams you could have paid upon signing up to the policy to fully cover your contents for AED 300,000. This clause applies to the building, contents and personal belongings.