Q's about contents insurance

[Jennifer13]

What is the problem with underinsuring? Isn't that just my problem? If I have $100k worth of items, but only insured for $80k (for example), then that is my loss. I have not come across claims being denied based on under insuring, only when people have tried to claim more than what they actually have. BTW we are fully insured, except the for the $1000 cap on DVDs, that wont cover the replacement of all of them. House rebuilding is unlimited

It varies from insurer to insurer, which is why it is very important to check with your insurer.

I could only find one quote that I've posted here from an insurance company:

What happens if I'm under insured?

When you submit a claim and are under insured, the principle of average will be applied to compensate you partially for your loss.

In accordance with the average clause in your policy, the extent to which you are under insured will be applied to your claim. Suppose your home or house contents are insured for only 50 percent of the replacement value and you submit a claim for $20 000. Only 50 percent of the claim, that is $10 000, will be paid out.

The home loans department of your bank or an expert in the building industry will be able to value your house. [Insurance company] suggests that you ask a reputable dealer to determine the insurance value of your vehicle.

What happens if I'm over insured?

When you submit a claim and are over insured, [Insurance company] will only pay out the replacement value of the insured items.

Say, for example, the contents of your house is insured for $200 000, but it is only worth $100 000. Burglars clean out the house and you claim for the full sum insured. [Insurance company] will only pay out $100 000.

What that means is if you've only insured for half of your contents, you don't get to nominate which of your contents is fully covered. So if only some of your stuff is stolen (TV, DVD, stereo) and the assessor calculates that your contents cover is only for half of what you have, you only receive half the value of what was stolen. Which means you wouldn't be able to replace what you've lost with the equivalent at today's value. So it might not be an issue if you lose ALL of your contents, but actually, it's more likely that you won't lose everything and will have to make a claim for only certain goods, even in a fire. (I should clarify too, that I believe some companies do not pay out the full amount insured if you lose everything and it is considered under-insured. Check with yours.)

Does that make sense?