Couples who live together at risk of being under-insured

If you’re unmarried and living with your partner, or living with friends in a commune, the chances are that your valuables are under-insured – if they are insured at all.

When people cohabit – especially unmarried couples – they either forget to notify their insurer that they are living together, or they assume that their possessions are covered by their partner’s insurer.

In light of the increase in unmarried couples who live together, Alexander Forbes Insurance (AFI) advises that couples make sure that their personal insurance adequately protects the assets that belong to both partners.

“If it’s the intention to insure the belongings of couples on the same policy, the insurance policy should be taken out in both their names, or, alternatively, the interest of one party must be noted on the policy of the other,” Gari Dombo, managing director of AFI, says.

John Tyson, senior underwriter at AFI, says the same could apply to friends who live in shared accommodation. They may have separate policies, or tenants in a commune may be noted on the policy of another occupant of the house.

“It depends on the level of independence that you want,” Tyson says.

The take-home message is: when you move in together, consider how you want to insure. Don’t make assumptions. Be specific about what you want and inform your insurer.

Dombo says: “The description of who is insured is important in understanding the contractual relationship, as well as who is entitled to indemnity under the policy.” This will prevent a dispute with the insurer, which could otherwise argue that the insured person has “no interest” in the property of the partner. The same principle applies to persons who live together but who are not in a relationship.

DO YOU HAVE AN INTEREST?

“Insurable interest” is one of the principles of insurance. Basically, it means that you can’t insure something in which you don’t have an interest, and you typically don’t have an interest in something that you don’t own.

Dombo says that people who live together must inform their insurance company when a new person moves into the household with their personal belongings, to avoid under-insuring their household valuables.

“If, at the time of a loss, the property and its content are insured for less than their true value, the insurers will pay only a proportion of the loss,” Dombo warns. This is in terms of the principle of “average”, which applies to all short-term insurance policies. It requires that you insure your assets at their full value. If the sum insured at the time of the loss is less than the insurable value of the property, the amount claimed will be reduced in proportion to the under-insurance.

“It is the duty of the insured to disclose all material information to the underwriter in order for the underwriter to properly access the risk,” Dombo says.

Remember that your insurance policy may be invalid if you have failed to disclose facts that a reasonable person would deem important.

“Issues of disclosure can arise when your partner moves in with you – or if you break up – as these circumstances change your risk profile,” Dombo says.

It is common for people in the throes of divorce to neglect to inform their insurer when they move out of the marital home. They take their possessions to a new property without considering that this move comes with new risk. Always keep your insurer informed of material information, such as where you are living.