Is Your Home Underinsured?

Every year we renew our house insurance – part of which is for rebuilding if we are unfortunate enough to suffer a fire. Most policies adjust the rebuilding amount each year in line with an index.

So that’s Alright Then?

No, says Robert Fairbairn of Goadsby. At a time when building costs are rising quickly, applying a national index can lead to an increasing gap between the indexed figure and the true cost of rebuilding.

The problem arises, says Robert, because the cost of labour and materials changes at different rates across the country. Applying a national index over the years can lead to distortions in the sum insured from the true figure.

If the amount insured is higher than the true figure, then the premium each year will be higher than needed.

More of a problem is being under insured. If you are unfortunate enough to suffer a fire, the insurance company will re-assess the building cost before meeting a claim. Even if only a small part of the property is damaged, the insurer will only pay part of the claim in line with the proportion of the ‘under insurance’ of the whole building.

Another pitfall is believing that the property needs to be insured for its market value less the value of the vacant plot. Houses very rarely burn to the ground and so the rebuilding cost has to take account of the cost of building a similar property rather than a new one.

Robert is currently advising a number of property owners on current rebuilding costs.

You can contact Robert on 02380 710401.