Living in the Cayman Islands is a privilege, and owning a piece of this tropical paradise is a dream come true for many. However, one aspect of property ownership that is of paramount importance – yet frequently overlooked – is purchasing enough insurance coverage. In the insurance world, not having enough insurance is called ‘underinsurance’.

Here, we take a deep dive into underinsurance, explaining how it could impact you and what steps you can take to prevent it.

Cracking the underinsurance code

Property underinsurance occurs when insufficient insurance is purchased to protect your property or contents fully. If damage occurs to your property from a fire, flood, or hurricane, your insurance company may not pay enough to cover all the costs needed to repair or replace what has been damaged or lost.

Property Underinsurance can happen for a few reasons:

Not updating your insurance policy: Most people buy insurance when they first buy their property, but it is important to update its value in the following years. Just like the cost of living, our homes’ replacement cost also increases yearly.

Misjudging values: Another reason is that people may underestimate the true value of their property.

IMPLICATIONS FOR POLICY HOLDERS

What does property underinsurance mean for the policyholder?

Financial risk: If you are underinsured and something happens to your property, you could end up having to pay a significant amount of your own money to cover the repairs or replacement of items to the same standard as you had at the time of the loss. This can be a huge financial burden.

Incomplete recovery: Being underinsured also means that you might not be able to fully recover what you have lost. For instance, if your home is underinsured, you may not get enough money to rebuild it to the same standards and features you once had.

Stress and uncertainty: Dealing with property damage is already stressful enough. If you’re underinsured, it adds an extra layer
of worry and uncertainty about how you’ll manage the costs.

DOES THE AMOUNT I AM UNDERINSURED MATTER?

Yes! The amount by which you are underinsured matters. If you pay only a portion of the premium that you should be paying to cover your home or contents fully, then you will only receive back an equivalent proportion of any claim. For example:

True Replacement cost: $1,000,000
Amount of Insurance Coverage: $500,000
Percentage Underinsured: 50%

In this case, if your home was damaged by a hurricane, which resulted
in a loss of $250,000, you would be paid $250,000 less 50% underinsurance = $125,000.

THE GOOD NEWS? THERE ARE WAYS TO AVOID UNDERINSURANCE

•  Have a qualified surveyor complete an appraisal of your property
every few years. Do not rely on the purchase price.

•  Create and maintain a comprehensive home contents list. Many people do not know how much all their ‘stuff’ is worth.

•  Ensure valuables are photographed and appraised – some high-value items require extra coverage.

•  Remember to adjust your insurance coverage following renovations.
Be realistic about the value and ensure you consider all the costs involved
in repairing or replacing them.

•  Review your insurance coverage at least annually, as the cost
to rebuild will likely increase with inflation.

In conclusion, property underinsurance is a situation where you don’t have enough insurance coverage to protect your property adequately. It can have serious financial repercussions if something goes wrong, leaving you to bear the brunt of the costs. To avoid this situation, it is crucial to review and update your insurance policy regularly and align yourself with a reputable insurance company that will ensure you have the right coverage.