Declare the correct sums to insure.

Both overinsuring and underinsuring will dent your pocket and not the insurers.

Overinsuring

This will cost you more in the long run, as you will pay higher premiums for cover you will never be able to claim for. Higher sums insured mean higher premiums, but in the event of a claim, the insurer will only ever pay out the cost of replacing the items at the time of the loss and no more.

Underinsuring

This will cost you more in the event of a claim. If you insure your stock for £20,000 when in fact on average you have £40,000, in the event of a claim your insurer will apply the average clause. This means because you have only insured for 50% of the replacement cost of your stock the insurer will only give you 50% - £10,000 out of the £20,000 you have lost. If you never claim then you will save money but in the event of a claim you will be out of pocket due to Underinsuring?