What is underinsurance?
Underinsurance is when your insurance policy cover and limits are lower than the total cost to rebuild your property. So, for example, if your insurance policy has a buildings sum insured of £850k but the total cost to rebuild your property is £1million this is called being underinsured.
Why does underinsurance exist?
Underinsurance often occurs when insurance policies fail to keep up with inflation or certain lifestyle changes. Some specific examples of why underinsurance exists can be:
- Rising construction costs – Restrained construction demand built up during the pandemic, further compounded by the Brexit effect on EU imports and the impact of the cost-of-living crisis has driven construction prices up as much as 25% which then results in a greater cost to rebuild your property.
- Home Improvements – Over time any improvements or extensions that are embarked upon will also have an impact on the cost to rebuild your property.
What would happen if I was underinsured?
It is usually only in the event of a claim that you find out you are underinsured. Which, of course, would be too late so we are looking at ways to prevent you from being in this position.
A claim could result in the insurer possibly reducing what they are willing to pay out or in extreme circumstances refusing to pay out on a claim. In effect, you would then need to support the difference not covered for the property and contents adding more of a financial burden on yourself.
How can I make sure I’m not underinsured?
In the first instance, you could look at Index linking https://calculator.bcis.co.uk/ but this is only useful if the initial calculation of your building value is correct. There can be a vast difference between each insurer and which indexing tool they apply; we believe a more robust way is to carry out a review of your property’s rebuild value.
9 out of 10 UK properties are insured for the wrong amount.
We would suggest you pay for a Rebuild Cost Assessment to ensure you have adequate insurance in place in the event of a buildings claim. The Rebuild Cost Assessment report will provide you with an RICS Regulated survey which will guide you on how much your building(s) should be insured for. For more information on how to arrange this assessment contact the team.
Final thoughts….
- Don’t forget the importance of the contents in your home – Take your time and review the contents currently in your property. You can create a list of items in each room and consider the cost of replacing each of these items.
- Suppose you had high-value items such as bespoke or classic furniture, jewellery, watches, or fine art check when these were last valued. These things should be valued every few years. If this still needs to be done, consider arranging a professional valuation to assess.
- For any improvements to a property, consider the property valuation following these improvements and assess the levels of the sum insured. Use the indexing link above or carry out a paid-for Rebuild Cost Assessment to help you evaluate the valuation of rebuilding your property.
- Speak to your local broker to help provide advice and guidance on underinsurance.
At Riskworks, we have extensive experience of working with clients assisting with surveys and valuations providing cover for all property types. To talk with us about your insurance needs or review your existing policy, contact Emma Patrick at 01625 547754 or email emmap@riskworksbusiness.com