Important information relating to under-insurance and your home insurance policy
Dear Policyholder,
We are writing to you in relation to the important topic of under-insurance – what under-insurance is, how it might affect you in the event of a claim and what steps you may take to ensure your house and contents are adequately insured.
Put simply, under-insurance occurs when you insure your buildings and contents for less than the amount it will cost to rebuild or replace them, meaning cover is not adequate to meet the full cost of rebuilding, repairing, or replacing all items as new. In the event of a claim, this may result in a policyholder not receiving the full amount necessary to rebuild, repair or replace items as new.
What should a “rebuild cost” include?
Should the unthinkable happen and you are in a position where you have to repair, replace or rebuild your home you need to consider every associated expense.
Obvious items to include would be building materials and labour. It is important that these costings are re-evaluated on a regular basis. According to the Banking and Payments Federation Ireland, construction costs in Ireland have increased by nearly 23% between the end of 2019 and the third quarter of 2023*.
*Per the Banking and Payments Federation Ireland’s Housing Market Monitor Q3 2023; Available at https://bpfi.ie/publications/bpfi-housing-market-monitor-q3-2023/
Could you be under-insured?
If you’ve just put in a new kitchen or bathroom, new windows, or maybe an extension of attic conversion, your existing cover may no longer be sufficient. It is important to inform your insurer of any such changes as it could alter your property rebuild cost.
You might have inaccurately estimated the cost to rebuild your home and how these costs may change over time. It is important to consider year-on-year inflation as well as the rising cost of building materials and labour. Making sure you review your rebuild cost each year at renewal is essential.
How could under-insurance affect you?
If a claim should arise and your sums insured are less than the full rebuild cost, a “Condition of Average” or “average clause” may apply which means: In the event of a claim, and where a policyholder is deemed to be under-insured, an insurance firm can reduce the sum it must pay against the claim in proportion to how much the policyholder is under-insured.
To put this into perspective here is an example of under-insurance:
A house with a rebuilding cost of €200,000 is insured for only €100,000, i.e. only 50% insured. If there is partial damage to the house of €50,000, then only 50% of the €50,000 will be paid out by the insurance firm, equalling €25,000, leaving the policyholder exposed to paying the remainder of the cost.
How can I avoid being under-insured?
You should review your buildings and contents sums insured on a regular basis (including when you are renewing your insurance). This means focusing on not just the cost of your insurance but making sure it is providing you with the right level of cover.
Consider economic factors that may need to be accounted for when setting/reviewing your sums insured such as the costs of materials and labour, the availability and cost of labour or inflation. Your sums insured may need to be amended to reflect any changes because of these factors.
To be totally confident that your home is fully insured, you may wish to contact an independent, qualified surveyor or valuer, who will help you to calculate the exact rebuild cost of your home. Please note this is at your own cost and is not covered under your policy.
The Society of Chartered Surveyors’ (SCSI) Guide to Calculating House Rebuilding Costs for Insurance Purposes provides an indication of the rebuilding cost for your home. You can access the calculator at the SCSI’s website (at scsi.ie).
Please note that, at all times policy terms and conditions apply. For any queries you may have regarding under-insurance, you can contact Hastings Insurance at:
Email: info@hastings.ie
Phone: 0818-911-222
