The first step to insuring your horse is deciding on the amount you should insure them for, this is referred to as the sum insured or value to insure.
To decide on this amount you need to determine your horses Market Value. In the first of our Insurance Insight articles we look at Market Value, what it is, how it is determined and its relationship with the sum insured.
Market value is the price at which the horse would change hands between a willing seller and a willing buyer when all relevant facts are disclosed.
If you are insuring a recently purchased horse, the purchase price would be a true reflection of the horse’s market value at that point in time.
Deciding the market value of a horse that you have owned for a while is more difficult. To help determine this you can look at advertised horses of a similar age, sex, breed, ability and experience, with the assumption that the advertised horse is in good health and would pass a veterinary examination.
Why is market value so important?
To understand the importance of market value in relation to the sum insured you need to understand how insurance works. An insurance policy is an indemnity policy, meaning it is intended to compensate you for your loss at the specific time of loss by putting you back in the same financial position as you would have been before the loss occurred. You should not profit from an insurance policy, the policy does not work on a new for old basis – you will be reimbursed for the actual value at the time of the loss up to the sum insured.
It should be noted that the sum insured and the market value do not need to be the same, however there are some rules that apply.
Horses must not be over insured, with policy holders profiting from the policy. Horses must also not be significantly under insured, as cover benefits such as vet fees, are rated according to the horse’s value, in line with the risk to Underwriters. Under insuring would mean the policy was rated incorrectly and Underwriters would be receiving the incorrect premium for that risk. Claims are settled from the collective ‘pool’ of premiums so if horses are repeatedly under insured the ‘pool’ will not be maintained to meet future claims, and premiums would have to be significantly increased across the board.