BY JOHN ELLIS, FINANCIAL ADVISOR
Were you unfortunate enough to be amongst the 16% of home insurance claimants who discovered too late that they were underinsured? Hopefully not. Have you reviewed your house insurance cover recently in the light of inflation and soaring building costs?
According to experts, if you are under-insured and make a claim under your policy you may not be fully protected and could receive less than the full amount necessary to rebuild or repair your home. For example, if your home is insured for €300,000 but the current rebuild costs of the property is €400,000, it means that it is underinsured by €100,000 or 25%. If a claim occurs where the damage is estimated to be valued at €100,000, because the property is underinsured by 25% the insured will only receive €75,000. You will then have to supplement the shortfall if you wish to restore the property to its original specification.
Billy Shannon of Aviva said: “Rising inflation and increases in material and building costs have seen the Society of Chartered Surveyors Ireland (SCSI) increase the rebuild rates last September, with significant increases of between 15% to 44% set. This is at complete variance to the previous rate increases published by the SCSI where rates would have increased by 4%-8%. Anyone who has ever had to make a claim on their policy will appreciate that it can be a stressful time and, as insurers, we want to avoid having to add to the stress by telling our customers that they are under-insured.”
All home insurance policyholders are due to receive a letter from their insurers to raise awareness of the risks of being under-insured. But don’t wait for that letter as six in 10 have not yet received a letter from their insurer.
As usual, many people are slow to act. In a recent survey conducted for Aviva only four in 10 Irish homeowners have received a letter from their insurer warning that the sum insured on their property may be insufficient due to the rising costs of rebuilding a home. Of those recipients only 6% reported having increased their sum insured to the correct rebuilding cost. More than one in 10 have received the letter and plan to act (14%)
Yet, fewer than one in 10 don’t plan to act (8%). Of those, one in five people said they simply cannot afford to pay any more – this is a bigger issue for households with children (38%) and those in the 35-44 year age bracket (33%) – while two in five say, that based on a policy review, they are satisfied that there sum insured is already sufficient. One third of homeowners say it’s on their to do list but that they just haven’t got around to it. Men (9%) say they are willing to take a chance that nothing will happen, with their female counterparts (1%) willing to risk it all.
More than one in five (22%) either don’t know how to calculate the correct amount or are not aware of the financial exposure of being underinsured. So review the level of buildings and contents cover you need on a regular basis, especially when renewing your insurance. Talk to your home insurance provider if you deal direct or your broker about the right level of cover for you.
Your insurer or broker should inform you of the risks of being under-insured. They should give you relevant and clear information when you take out, or renew, your insurance policy. In the event of a claim, this may help you to avoid an insurance pay-out that doesn’t cover your costs.
According to Zurich you should also consider any upgrades or additions to your home, and don’t forget your contents and personal possessions as these may change the amount you need to insure. Items such as a new sofa, laptop, television, or carpets may increase the cost to replace all contents as new. Installing a new kitchen, office, bathroom or fitted wardrobes may require a review of the cost to rebuild your home.
You need to be proactive. You need to inform your insurer of any changes. Ultimately the buck stops with you. To find out how much it would cost to rebuild your home use the Society of Chartered Surveyors Ireland’s free calculators at www.scsi.ie/consumer/build/calculator/ to estimate the correct rebuild cost or get a property valuation service to value the cost of rebuilding your home. The SCSI site has charts and Frequency Asked Questions that will point you in the right direction.