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.
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’s so important that these costings are re-evaluated on a regular basis. We saw in 2021 the cost of annual building inflation surged by 13% in H2 and if price increases such as this are not considered, you may not be adequately covered. Things that might be overlooked but are also important to include are: the cost of removing debris after a loss, any architects’, surveyors’, and other professional fees as well as any additional costs necessary to meet current building regulations. The “rebuild cost” of your property should not be confused with the “market value” of your property.
When calculating the value of your contents to be insured this figure should be based on the total cost of purchasing all new household goods and personal belongings for the home.
*Per Government of Ireland report “BUILD 2022: Construction Sector Performance and Capacity”, July 2022, “The SCSI Tender Price Index for H2 2021 records annual inflation of 13% (more than double pre-Covid-19 level), linked to pent-up demand post pandemic, labour shortages, the invasion of Ukraine, and supply chain disruptions (steel, base metals, and fuels in particular)”.
Could you be under-insured?
If you’ve just put in a new kitchen or bathroom, new windows, or maybe an attic conversion, your existing cover may no longer be enough. It’s 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.
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 could under-insurance affect you?
If a claim should arise and your sums insured are less than the full rebuild cost, the “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.
Need more information?
For further information on accurately calculating your building and sums insured you can visit the Society of Chartered Surveyors Ireland’s (SCSI) Guide to Calculating House Rebuilding Costs for Insurance Purposes.
Please note that, at all times policy terms and conditions apply. For any other queries you can contact Hastings Insurance on: