Noreen Guiney of MBC Insurance
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Under insurance is the term used when a homeowner insures their property and contents for a lower amount than their true value. There can be several reasons a homeowner might be exposed to this type of scenario including:
It could be the homeowner finds it difficult to estimate what it would cost to rebuild their home; or they may not be fully aware of the true value of their property & possessions; or they may simply forget to amend their policies as they make home improvements or buy new contents for their homes; or it could be they are looking for a cheaper annual premium and deliberately under insure. Whatever the reason, it is usually only in the event of a claim that the full consequences of under insurance is realised at which point it is too late to correct. Under insurance can have a severe impact on the successful settlement of a claim and can subsequently result in major financial hardship to the homeowner. Whilst it is important not to over insure (where a policyholder has bought so much coverage that it exceeds the actual rebuild & replacements costs of the property insured), it is essential that you have the correct cover in place.
Some insurance companies automatically increase the amount of the buildings and contents cover when you renew your policy each year. This is called index-linking and although it helps avoid being under insured as it increases the amount of cover in line with inflation, the cost of replacing items changes so often that sums insured need to be frequently reassessed in line with these changes. It is therefore very important to check the amount of cover you have so that you are not under insured or over insured. It is also important that policyholders insure for the re-build costs of their home and not the re-sale value as often these figures can be confused & miles apart.
If you find yourself in the unfortunate position of having to make a claim on your home insurance policy and you have under insured your buildings and contents sum insured, most Insurance Companies will apply the ‘Average Clause’ in the event of a claim. This is a proportional reduction in settlement of a claim. For example, a property insured for €300,000, but actually costs €400,000 to rebuild. In this case, the property is only insured for 75% of the actual value & any claims will be settled on this basis. So for example, if the property suffered water damage amounting to €20,000, insurers would only pay a maximum of €15,000 for this loss. A financial loss of €5,000 for the policyholder.
To avoid under insuring, it is a good idea to review your buildings and contents cover at least once a year to make sure you do not run into trouble in the event a claim does arise. You will be surprised at how much an average household sum insured can increase over the course of a year. A good idea is to walk through each room in your home, listing every item you can see and calculating its value.
They should include everything from curtains to carpets and everything in between, remembering that items stored out of sight are often at risk of being forgotten. Contents stored in garden sheds such as tools and lawnmowers and items stored in attics or lofts such as luggage, linen or glassware should be considered also when doing up their inventory. For items like electronics, take note of the make, model and serial numbers as this is particularly important in the event of a theft at your property. Cataloguing these serial numbers will allow the Gardai to identify them if they are later recovered. It helps to review your building & contents sums insured each year. Not only will this give you peace of mind that you are adequately covered but it could also help to avoid financial stress at a later stage.
If you are unsure of the rebuilding cost of your home a useful rebuild cost calculator is provided by the Society of Chartered Surveyors in Ireland. This can be found at www.scsi.ie. Alternatively you can engage a local property surveyor for a rebuild property valuation report on your property.
“I would advise all home policyholders to regularly check the amount of cover they have so that they are not under insured or over insured. It is also important that policyholders insure for the rebuild costs and not the re-sale value as often these figures can be confused and miles part”