Common Mistakes People Make When Buying Insurance

Insuring to market value instead of rebuild cost

For a home or commercial building, what it would sell for and what it would cost to rebuild are two different numbers, and the policy cares about the second one. Market value includes the land and the location; a rebuild cost includes demolition, materials, labour, professional fees and meeting current building codes.

Insure for the sale price and you can be badly short on a total loss. Insure for the rebuild cost, updated each year, and the cover does what you expect.

Guessing the sum insured

Contents and building sums insured are often round numbers plucked from thin air, then rolled over unchanged for years. The result is usually underinsurance, which an average clause can turn into a reduced payout even on a small claim.

Use a rebuild-cost calculator for buildings and actually walk through the house or premises for contents. A rough but honest figure beats a comfortable guess.

Skipping the questions, or not updating the answers

The questions an insurer asks are not a formality. Your answers form the basis of the contract, and rushing them, or failing to update them when things change, is one of the most common reasons claims are reduced or declined.

Renovated, taken in a tenant, started working from home, bought new equipment? Tell your insurer. It is far cheaper than arguing about it after a loss.

Treating insurance as set-and-forget

Cover bought three years ago was built for the life you had three years ago. Property values, possessions, business activities and risks all move, and a policy that is never reviewed slowly drifts out of step.

An annual review, even a quick one, keeps sums insured realistic and catches gaps while they are still cheap to fix.

Choosing on price and never reading the exclusions

The cheapest policy is cheap for a reason, and the reason is usually in the exclusions. Knowing what is not covered is just as important as knowing what is. A broker will walk you through both before you buy, not after you claim.