Q: I have recently received a note from my home insurance warning me about under-insurance. I haven’t had a claim or anything along those lines for quite some time, but I also don’t think that I’ve made any changes to my policy in years and years. I have done some small works around my house, nothing too major but certainly it has madehome re the house more valuable. Is this something that I need to be worried about?
A lot of home owners have received letters or emails from insurers over the past number of weeks as regards under-insurance.
Under-insurance is a situation whereby your policy does not cover the full replacement or reinstatement value of your home or its contents. For example, if you had bought your home ten years ago, it is likely that both the value of the property and the cost of rebuilding the property have increased substantially. If your policy only covered the initial value of the property, in the event that there is a claim, you may be substantially out of pocket.
You may also find that your work has increased the value of the property.
Let us say, for the sake of argument, that the initial rebuild value currently noted on your policy is €200,000, but the actual rebuild value (bearing in mind the increased cost of labor and materials, as well as your improvement works) is now €400,000, you are only insured for 50 per cent of any loss.
If there were a total destruction of your home, you could only claim €200,000.
The same consideration would also apply in respect of partial claims.
If €100,000 worth of damage was caused to your home, you could only claim for 50 per cent. This is obviously a very substantial shortfall to make up from your own pockets.
Close to 20 per cent of house insurance claims are under-insured.
You should make contact with your insurance company or broker to ensure that you have the correct level of cover noted on your policy. You might need to take some professional advice as regard rebuilding values, or indeed the overall value of the property given the improvement works you have carried out.
Of course, if you seek to place a higher rebuild value on your policy, you would expect to see an increase in the policy premium. However, generally speaking the rise would not be terribly substantial, but the potential loss in the event of damage might be ruinous.