Many home owners drastically underestimate how much their possessions are worth.
When it comes to home insurance , we pay our premiums hoping that we will never have to make a claim. But for those unlucky enough to have been forced out of their home by fire or flood, finding out that they are underinsured could be a fierce blow.
It is all too easy to fall short on cover. New research shows that over the past three years the cost of replacing the contents of the average home has increased by 24pc and currently stands at around £55,000.
However, according to Sainsbury (LSE: SBRY.L - news) 's Home Insurance, home owners typically believe that their home contents are worth just over £31,000, leaving them at risk of being underinsured by around £24,000.
"Our homes contain everything from the necessary fixtures and fittings like carpets and curtains to our most prized possessions and gadgets, but many of us may not realise their true combined value," said Ben Tyte of Sainsbury's.
"The value of home entertainment equipment in people's homes, such as televisions, games consoles and computers, has also increased significantly, suggesting that people have been embracing new technology and are investing in home entertainment devices such as new 3D televisions, iPads and music systems," said Mr Tyte.
According to an analysis of data from Criterion, the loss adjusters, dining rooms and living rooms have seen the biggest increases in contents value since 2009. Their contents are now worth £14,000 and £5,250 respectively.
And many people do not know that, if their insurer realises that they are underinsured, it will pay only the corresponding percentage of the claim in the event of a disaster.
Insurers use loss adjusters to calculate the value of your possessions when you make the claim, at which point it is too late to get adequate insurance.
To avoid a shortfall of tens of thousands of pounds, home owners must ensure that they are adequately covered. But how can you ensure that you are properly protected? How do you know how much cover is enough?
While mortgage lenders typically insist on buildings cover being obtained as a condition of the loan, this will not pay out for damage deemed to require contents cover. Buildings insurance covers the home and anything fixed to its structure such as walls, pipes, central heating and patios. The best way to determine what is covered by which policy is to imagine turning the house upside down and shaking it anything that remains in place comes under buildings cover and anything that falls is contents.
To ensure you are adequately covered, it is sensible to do some maths before taking out a policy. For instance, home owners need to consider how much it would cost them to replace all their things on a "new for old" basis, as that is how insurers will generally replace any lost or damaged contents. Do not be tempted to underinsure even if you do not feel that thieves will want to steal your things, insurance covers flooding and fire, which could destroy everything you own.
And it is important to ensure that you recalculate your cover with each annual policy.
"Each year when you renew your home insurance you should reassess how much it would cost to replace all of your possessions," said Sally Silver of LV=. The simplest way to ascertain a figure is to go through your house room by room and make a note of everything from curtains, sofas and ornaments to clothes, shoes, bags and bedding. Insurers LV= (tinyurl.com/cez4klk) and Aviva (EUREX: AVF.EX - news) (tinyurl.com/cllerpl) offer online contents calculators that walk you through a virtual home, prompting you to think about everything you own.
Consider any expensive items you may have; check your policy limits for each item and specify them on your policy. Jewellery is often undervalued, so be careful when doing your sums.
For instance, according to figures from Aurum Holdings, the price of gold has risen by 132pc and silver by 118pc in the past four years, so the contents of your jewellery box may have increased in value substantially.
Asia Yasir of eSure said: "To avoid unnecessary hassle, home owners should ensure that they revalue precious jewellery or costly household items whether they are made from gold, silver or diamonds to ensure that they would be fully compensated should the items be lost or damaged."
Aviva (LSE: AV.L - news) , for instance, provides £10,000 worth of cover for valuables in the home as part of standard contents this includes gold, silver, precious metal, jewellery and watches. However, single pieces of jewellery are covered up to just £2,000, so if you think your engagement ring or designer watch is worth more, you must notify the insurer.
Also worth considering are flat-screen televisions, DVD players, computers or laptops. Make a note of the current retail value of each item, rather than what you originally spent. It is also worth marking your name and postcode on these items with an invisible ink pen that shows up under ultraviolet light. That way, if they are stolen you stand a better chance of getting them back should they be recovered by the police.
When it comes to buildings cover, home owners should remember to insure their property for the total amount it would take to rebuild the home in the event of a "total loss", from a major fire, for example.
"The rebuild value is different from the market value or purchase price," said Jonathan Cracknell, a household underwriter at Aviva. "If there is a mortgage in place, home owners can use property valuations that were completed as part of the mortgage process, but there are also online tools available from the Association of British Insurers which help calculate a sum insured should the customer be unsure of what the rebuild value is." Go to abi.bcis.co.uk .
Carmel McCarthy of Post Office Insurance pointed out that home owners who had added an extension to their property should bear in mind that it would need to be considered in the rebuild costs.
"Inform your insurer of any changes to buildings," she said. "This will ensure that you will have the right level of cover in place should anything happen.
"Once you have received your policy, check that the information is correct. If you find an error, you should contact your insurer immediately."