When it comes to purchasing home contents insurance, some policies require you to choose your sum insured, whilst others stipulate a pre-defined limit (say £30,000) which means you will be covered up to this amount.

Either way, it is imperative that you ensure the sum insured or preset limit is adequate for your own personal requirements. No two homes are identical as we all have different possessions, so the onus rests upon the policyholder to ensure their sums insured are sufficient.
The sum insured is the total amount of money for which your contents are covered. It is the most your insurers will pay, even if all your possessions are totally destroyed - say by fire or explosion.

It is extremely rare for all the Contents to be destroyed and almost all claims will be for partial losses. As the likelihood of a total loss is small, some people may be tempted to think they do not need to insure all their Contents. This however is incorrect; because of the way Home Contents Insurance policies are written, a requirement is that you choose a sum insured that is sufficient to cover all your possessions (and for items insured on a ‘new for basis’, you must use their cost as new when calculating). TOP
 
If you do not insure all your contents for their full value, you may find you are under-insured, which means the insurers can reduce any claims settlement they make. For example, if you decide to insure your Contents for £20,000, when the true figure should be £25,000, you are under-insured by 20%, i.e. you are only insuring 80% of the true amount. When under-insurance applies, insurers can reduce all claims payments by the amount of under-insurance

As an example, if some of your Contents was damaged and you needed to claim for say £2,000, insurers would only settle on £1,600 (20% less) less any policy excess.

Remember, it is your responsibility to get the sum insured correct at the inception and also throughout the life of the policy. If you make additional purchases, or replace items with more expensive ones, you should increase your sum insured accordingly. TOP
 
If your policy is index-linked, do not automatically think you do not need to worry about under-insurance or do not need to be concerned about increasing your sums insured.

Firstly, for index-linking to be of any benefit, your initial sum insured must have been adequate in the first.

Secondly, your sums insured must be increased to reflect all additional purchases as they occur.

Lastly, index-linking relies on a different indices (e.g. the Retail Price Index) in order to arrive at an average inflation figure. As these indices can only ever be averages, they will be insufficient to reflect the true inflationary price rises for all circumstances. Therefore, it is essential that your sums insured are reviewed and updated regularly. TOP
 
Reassessing your sum insured can be daunting, especially for larger properties. The most straightforward way to approach the task is to go from room to room (not forgetting the loft, garage and shed) writing down what it would cost to replace groups of item as new (if covered on a ‘new for old’ basis). For items insured on an ‘indemnity’ basis (usually clothing and household linen), you should deduct an amount for wear, tear and depreciation based upon the age, quality and general condition of the item.

For the more specialist and higher value items such as antiques and valuables, an expert valuation may be necessary.

Where possible, retain receipts and valuations for items - these can be very helpful if you need to claim. Take photographs or videos of valuables and keep them with your policy.

A good idea is to maintain an inventory of your possessions, along with photographs/videos etc and store these on CD or DVD for safe keeping. TOP