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MONEY COMMENT
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A very useful explanation of what it really means to be underinsured appeared on our discussion boards the other day - so useful that I'm going to swipe it for this article. Last year, when I reviewed my home and contents cover, I increased the amount of cover I had for the contents. Having had a kitchen re-fit fairly recently, we'd bought a load of new white goods and, anyway, my husband's CD collection seems to multiply like wire coat hangers in a cupboard (why does that happen?) so it was time for a review. I made a rough guess at what it would cost to replace the music and the various important bits of furniture and equipment and then picked an arbitrary figure that sounded like it would more than cover everything if the house burnt down. However, as our Fool pointed out on the discussion boards, your insurance covers you for the total value of all the contents - not just the bits you'd want to replace. She pointed out that if you insure your contents for, say, £25,000 but the total value for everything, including the junk, is really £50,000, then you're 50% underinsured. As a result, your insurer would, therefore, be entitled to reduce any claim you made by 50% because you weren't properly covered in the first place. It's also important to decide whether you want cover to replace everything as new, otherwise known as 'new for old' or whether you simply want 'like for like' cover in which case deductions will made to account for wear and tear and depreciation. According to a survey carried out last year by More Th>n, the typical household in the UK is currently underinsured by an average of £27,000. The contents of a typical house are now worth £42,000, and in the South East, just over £48,000 – an increase of 42% since 1994. As our Fool pointed out, don't pay additional insurance for stuff you don't want to keep anyway - ie: declutter. And don't risk being underinsured because you think your insurer will "understand" that you didn't want certain things replaced anyway. Make a realistic list of what it would cost to replace everything in your house and insure yourself accordingly. As the Association of British Insurers points out, it's your responsibility to make sure you are insured properly. Find out more about Contents Insurance; Get Home Cover That Measures Up; Your Possessions Are Worth More Than You Think