The first and possible most important question that you need to answer when
taking out household contents insurance is how much do you need to insure for -
this is known in the trade as the "insured sum". This is the maximum total
amount that your insurance company will pay out when you claim. So clearly it's
important to accurately value the contents of your home. And of course it's also
important to adjust this amount regularly (annually for example), so that
insured amount keeps pace with your new acquisitions and your evolving
lifestyle.
The best advice we can give you is to take a bit of extra time to properly
put a value to the contents of your home. More often than not when you fill in
your insurance application form you'll get a detailed possessions evaluation
form that covers everything you could possibly own. Your insurance broker will
usually tell you that it's not necessary to fill this in complete detail - that
it's simply important to make a good estimate of the total value of your
possessions. However, it's worth you while to take the time to actually go
through all your possessions to get an accurate value for everything. More than
anything else it will force you to take a good look at everything - you will
usually find that your total value is more than you would otherwise have
estimated. A good example is your bookshelf or your CD collection. If you had to
look at it and estimate the value, you'd probably undervalue it - because you'd
forget the items that you paid extra for to have delivered from Amazon, that you
can't actually get at your local book or CD store. It's little things like this
that will make the difference between being able to fully replace what you lose
using your insurance payout and having to fork out extra money to do so.
Of course the flipside of this is that the more you insure for, the higher
your premium. But this increase isn't usually a lot, and you'll certainly be
glad of it if it ever comes time to claim.
Dealing with insurance limits
There are, however, limits to the value you can insure for with default
insurance policy options. Insurers place these limits on individual items - and
this limit could well be lower than the actual value of the things that you own.
You'll do well to remember that you don't have to accept what the insurer
proposes, and can haggle with them, or shop around for an insurer that will be
prepared to insure your possessions at a higher value. Once again, the trade-off
is the size of the premium that you'll pay.
The other option you have here is to make the item a "specified item". If the
items that have limits on them form part of your overall household contents
value, then this is most likely where limits will apply. However, you can choose
to specify items over and above the collective value, and insure them
individually. A good example here would be a musical instrument. The insurer
might decide that there is a limit on your instrument, based on the retail
value. However, you may have customised the instrument (putting a more expensive
reed into a saxophone, or a more powerful pick-up into an electric guitar). This
customised version of the instrument cannot be bought stock at a music shop, so
if this customised instrument is merely included with your general insurance
figure, chances are it will be under-insured. So what you can do is specify that
you are insuring your specific customised instrument at a specific value that
you determine. This will add to your premium, but it will ensure that you can
replace the exact instrument in its customised state - you'll be able to afford
to buy the customised parts and have them fitted again.
A further option here is to separate your insured item into its individual
component parts and insure each part separately as part of your overall
insurance. For example, if you own a component hi-fi, instead of insuring your
hi-fi as such, at the limit imposed by the insurance company, you can insure the
amp, speakers, turntable and CD player as separate items, each with their own
individual limits. In this way the default insured amounts can add up to the
total cost of your hi-fi that is higher than the limit for a hi-fi per se.
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