How is a contents sum insured worked out?

Room by room at replacement cost, the categories people forget entirely, and why under-insuring reduces small claims too.

Difficulty: beginner
Time: 45 min
Read: 4 min
Safety: caution

Short answer

Add up what it would cost to replace everything new, room by room, not what you paid or what it is worth now. Most people underestimate substantially because they forget clothes, kitchen contents and the loft. Under-insuring can reduce every claim proportionally, not only a total loss.

Contents insurance is priced on a figure most people guess. The guess is usually low, and the consequence of that is not obvious: many policies reduce claims in proportion to how far the sum insured falls short, so a small claim is affected too.

Safety

This explains how the figure is arrived at, not what cover anyone should buy. Under-insuring can mean a claim is reduced proportionally even when it is well below the sum insured — the same problem applies to small claims as to total losses. Only your own policy wording says how your insurer applies it.

Step by step

Understand what replacement cost means.What it would cost to buy the item new today, not what you paid, and not what you would get for it second-hand. On a new-for-old policy that is the basis, and it is why estimates come out higher than expected.
Work room by room rather than by category.Walk through each room and list what is in it. Category thinking misses things; standing in a room and looking at the shelves does not.
Include the rooms people skip.Loft, garage, shed, under the stairs, and the airing cupboard. These hold a surprising amount and are routinely omitted from the estimate entirely.
Count clothing properly.This is the single largest underestimate for most households. Count the actual number of items in every wardrobe and drawer and price them at replacement cost. The total is usually several thousand pounds.
Count the kitchen.Pans, crockery, glassware, small appliances, cutlery, storage. Individually inexpensive and collectively substantial, and almost never included in a mental estimate.
List anything above the single-item limit.Jewellery, watches, bicycles, cameras, musical instruments, collections. Anything above the policy's per-item limit must be specified individually by name, or it is not covered at that value.
Check what counts as contents.Broadly, what you would take with you if you moved. Carpets and free-standing appliances are usually contents; fitted kitchens and bathrooms are usually buildings. The policy defines it.
Use an insurer's calculator as a cross-check.Most insurers provide one. Treat it as a sanity check on your own room-by-room figure rather than a substitute for it — they are generic by design.
Understand under-insurance.Many policies apply average: if you insured for half of what you should have, a claim may be settled at half. That applies to a stolen laptop as much as to a fire, which is the part people do not expect.
Photograph and record as you go.A video walkthrough of each room, drawers and cupboards open, plus receipts and serial numbers for the valuable items. Store it somewhere outside the house — that is what a claim is settled on.
Review it annually.At renewal. New purchases, gifts and replacements accumulate faster than people notice, and a figure set five years ago is almost certainly low.
Update after anything significant.A new kitchen's worth of appliances, an engagement ring, a bicycle, a house move. Those are the moments the figure changes materially.

Tips

Do the video walkthrough even if you do not do the arithmetic. It takes ten minutes and it is the single most useful thing you can have at claim time.
Insurers often offer a 'bedroom rated' policy where the sum is set by house size. Convenient, and worth checking the assumed figure is not well below your actual contents.
Jewellery valuations are usually required to be recent — commonly within three to five years — for items specified individually.

Common mistakes

Estimating what things are worth rather than what they cost to replace — New-for-old cover is based on replacement cost. Second-hand value produces a figure far below what a claim would actually need.
Forgetting clothes — It is consistently the largest omission. Counting the actual items in every wardrobe usually adds several thousand pounds to the total.

If it doesn't work

Claim settled at less than the loss

Cause: Under-insurance and the average clause applied — Fix: Check the policy wording on average. Recalculate the sum insured properly at the next renewal — it affects future claims of any size.

Valuable item not covered at full value

Cause: Above the single-item limit and not specified — Fix: Specify it by name on the policy, with a recent valuation where required.

Unsure whether something is buildings or contents

Cause: The line is not intuitive — Fix: Roughly, what you would take with you if you moved is contents. The policy definition governs, so check it for anything significant.

Questions people ask

How do I work out my contents sum insured?

Room by room, at the cost of replacing everything new today rather than what you paid. Include the loft, garage and shed, and count clothing and kitchen contents properly — those are the largest omissions.

What happens if I under-insure my contents?

Many policies apply average, reducing a claim in proportion to the shortfall. If you insured for half what you should have, a claim may be settled at half — and that applies to small claims as well as total losses.