With your home being the most expensive, and probably most important, purchase in your life, isn’t it worth taking an extra few minutes to make sure it’s properly protected? Purchasing insurance protection is a good first step, but is it enough? If you haven’t properly estimated your home’s rebuilding cost, or if your policy contains what is known as an “Average” clause, you may be significantly out of pocket in the event of a claim.
RISING BUILDING COSTS – WHY DOES THIS MATTER TO HOMEOWNERS?
The cost of materials and labour has gone up significantly over the last year. According to the latest figures from the CSO, overall building material costs are up over 15% to end of October 2021. To put this in context, these figures increased by less than 5% during each of the two previous years. Labour costs are also increasing, up by over 8.5% in the year to the end of June 2021.
The value of your home insurance cover should be based on the total cost of rebuilding your house, not its market value – a crucial difference and a common mistake many homeowners make.
Recent research also shows that Irish homeowners spent up to €11 billion collectively on renovations over the past 12 months – in other words their homes may now be worth more than they are currently insured for and with rising costs could cost even more to reinstate should the need arise.
HAVING A CORRECT VALUATION IS A KEY FIRST STEP
Many unadvised homeowners are often unsure how much to insure their home for and, as a result, many choose either the price they paid for it when they bought it, or their best estimate of its current market value. Both of these options could have serious consequences for them in the event of a serious claim. The correct approach is to insure your home for the amount it would cost you to reinstate it on the same site in the event of a total loss. This is a task which most of us would find too complex, so it is always worth checking the Society of Chartered Surveyor’s Guide to House Rebuilding Costs for more information.
From an insurance point of view, we want to make sure homeowners are aware of the potentially very serious financial consequences of underinsuring their home. In event of a total loss, for example a house fire, you want to know that you have enough cover on your policy, to insure the full cost of rebuilding your home in line with current building regulations. For example, imagine the current cost to rebuild your home is €500,000, but due to undervaluation it is only insured for 80% of this cost i.e. €400,000. In this case, if a full rebuild was required there would be a short fall of €100,000, not a prospect any home owner wants to happen.
This may not only apply to full rebuild costs but also to less severe losses, if your policy has what is called an “average” or “underinsurance” clause. Any claim made could be reduced by the same proportion as the overall level of underinsurance. For example in the scenario described above a claim for a leaking radiator costing €5,000 could be reduced to €4,000 or in other words to 80% of the repair costs.
PROTECT YOUR HOME – REVIEW YOUR POLICY
Therefore, no matter what you are paying for your home insurance, it’s important to take a look at your sums insured every year. You want to make sure that you are not over-or under-insuring your property.
Now is a good time to speak to us for timely and expert advice. At Glennon, for over 70 years, we have been leaders in Irish insurance with a strong belief in one thing — providing expert advice after taking the time to understand your personal insurance needs. Your home is probably the biggest purchase you will ever make — with a value to you way beyond just the purchase price. It is important to make sure you protect your home properly against the full range of risks it is exposed to.
If you have any questions, our Home Insurance Team is available to help by calling 01 707 5862.
Gerry Edwards – Head of Personal Lines
