Jewellery insurance & how to avoid the average clause

Jewellery insurance – how to avoid the average clause

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If you're making a home insurance claim, the last thing you want is to discover you're underinsured. Here, we show you how to prevent that happening…

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If you own an expensive and cherished engagement or wedding ring, necklace, watch or other valuable item of jewellery, you need to make sure your contents insurance is providing full protection in case of damage or theft.

It's not always easy to value our possessions accurately, particularly if we've had them for some time. But if you don't review your contents insurance regularly, you could be in for a shock.

Thanks to rising gold prices, for example, (the price of gold has gone up by 25% over the past five years), your jewellery could have significantly increased in value since you bought it.

And during that time your family may have amassed even more pods, pads, tablets and devices to add to the total value of your belongings.

As a result, the combined value of the contents of your home could be much more than you think. But if you don't give your insurer an accurate estimate, you could be in for disappointment, if and when you make a claim.

The Financial Ombudsman Service, which deals with complaints about insurers, is warning of the growing problem of under-insurance, which can result in the insurer either refusing to stump up for the claim, or slashing the payout under a so-called 'average' clause.

'Average' clause explained

Most people only encounter the 'average' clause when it clonks them over the head in the wake of a claim. Here's how it works:

Let's say you value the contents of your home at £30,000, but their true worth is £60,000.

In other words, you have underestimated their value by 50%, leaving you with half the cover you need.

If you then make a claim for £20,000 after a burglary, the insurer is entitled, thanks to the average clause inserted in your policy's small print, only to pay out half, or £10,000, leaving you with a hefty shortfall.

If you'd insured them for £45,000 – 75% of their value – then the payout you'd receive on that £20,000 claim would also be in proportion, meaning you'd get just £15,000.

Accurate valuations

Of course, it's not always easy to value your possessions. We are not experts, even if we are regular viewers of Antiques Roadshow.

But some of the responsibility lies with the insurer. The Ombudsman insists that insurance companies must ask clear and straightforward questions about the value of your contents.

The combined value of the contents of your home could be much more than you think

For example, the firm should ask for the total value of the items in your home, not how much cover you need.

And, says the Ombudsman, if a customer is referred to an online valuation calculator, the insurer should also check the tool is suitable for every circumstance, as some online calculators do not accommodate large properties.

Renewal problems

Problems can arise at renewal, too. Insurers often complete sections of the renewal form based on their existing information. But they should always ask the consumer to check the details are still accurate and warn of the consequences of underinsurance.

The FOS says: “Obtaining clear and complete information is crucial to insurance. Which is why we don't see many problems arising when insurers ask the right questions – which consumers are able to answer accurately.”

Of course, the consumer should also make every effort to calculate the sum assured accurately. Careless or deliberate misrepresentation are definite no-nos.

Single item limits

It's worth mentioning single item or individual item limits at this point as they are a common feature of insurance policies.

For example, a policy might have a sum insured of £30,000 but a single item limit of £2,500. In other words, if a burglar stole a TV worth £1,500, a computer worth £2,000 and a watch worth £3,000, the insurer would pay out only £6,000 instead of £6,500 because the claim for the watch would be limited to £2,500.

Many customers fall foul of single item limits, so it's important to make sure you understand the full implications before you take cover.

Top tips for getting the right sum insured

  • To make sure your sum assured is accurate, you will need to know exactly what your policy covers. For example, some insurers cover the contents of your shed, garage or freezer. 
  • Draw up an inventory of your possessions, room by room. Don't forget the loft, basement and any outbuildings.
  • Be sure to get expensive items such as jewellery valued regularly – experts recommend doing this every two years.
  • Be wary of online valuation tools as they can be a bit rough and ready. You also need to check the figures for accuracy.
  • Check whether there are any single item limits on your policy.
  • If in doubt, some firms offer unlimited contents cover so you don't have to worry about accurate valuations. Almost inevitably, though, you'll have to pay a higher premium than on a standard policy.

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