ESSENTIAL GUIDE TO MONEY: Under-insurance can prove costly so think carefully for peace of mind

Think carefully about insurance for peace of mind and potential savings, says personal finance writer ED FOSS.

A FEW scare stories have been circulating in recent weeks about the dangers of under-insurance.

What those stories should prompt is not a panic to increase home contents insurance cover, but a more generic and careful think about what you need to insure and how much you should insure it for.

Under-insurance is, for example, insuring your home contents for �20,000 when they are in fact worth �40,000.

That might make people think that if you have a complete loss situation, you would at least receive �20,000. But what it can also mean is that if you have your �500 television stolen, the insurance company may well only give you �250 — because everything in your house is considered to be insured to exactly half its value.

It is, therefore, a risk to under-insure yourself. That doesn’t make it illegal, in fact some people might decide to deliberately under-insure in order to save money while accepting the risk of being unable to afford adequate replacement items if the worst were to happen.

The level of insurance you buy depends on what your intentions are if you were to face a loss. If you are happy to take less than the value that is all very well, but with that risk comes the potential for serious hardship.