How To Swerve Insurance Trap On Your Home

Information extracted from Sunday Independent, 12 Jan 2025

Author: Gabrielle Monaghan?

Thousands Stranded Without Utilities

Last Wednesday's cold spell left thousands of people in Cork, Kerry, Limerick, Tipperary, and the midlands without electricity, water, or broadband. For many, the financial costs of the aftermath far exceed replacing thawed-out fridge contents.

Flat roofs collapsed under heavy snow, and frozen pipes and water tanks burst, causing significant damage to ceilings, insulation, electrical wiring, flooring, plasterboard, and furniture all requiring expensive repairs or replacements.

The Financial Burden of Repairs

Homeowners impacted by this crisis are filing claims, hoping their insurance will cover the damage.?

However, those with inadequate home insurance face significant out-of-pocket expenses, often running into tens of thousands of euros.

Approximately one in five Irish homes are underinsured. Even those paying home insurance premiums may discover they cannot cover repair costs fully.

Rising Costs and Challenges

The cost of rebuilding homes has surged, driven by post-pandemic supply chain disruptions and inflation, exacerbated by geopolitical tensions such as the war in Ukraine.

Rebuilding costs increased by 36% in the two years leading up to the end of 2023, according to the Society of Chartered Surveyors Ireland (SCSI).

Winter Woes for Homeowners

Winter brings higher risks for homeowners, with insurance claims rising due to:

• Burst pipes.
• Storm damage
• Burglaries during longer, darker nights.

Paul Walsh of Peopl Insurance notes, "Storm Darragh caused significant damage, with homeowners discovering leaks only when water seeped through ceilings. Climate change's impact on volatile weather heightens the risk."

Avoiding the Underinsurance Trap

What Is Underinsurance?

Underinsurance occurs when your home is insured for less than its rebuild cost. Many mistakenly insure their homes based on market value or purchase price rather than rebuild cost.

Key Terms to Understand

Building Sum Insured: The maximum payout for rebuilding your home.

Contents Sum Insured: Coverage for replacing personal possessions.

Kevin Hollingsworth, president of SCSI, emphasizes, "The value of your home and its building sum insured are entirely separate."

Staggering Statistics

In 2021, nearly 17% of Irish homes were underinsured, up from 6.5% in 2017, according to the Central Bank. For those impacted, insurance payouts were reduced by an average of 19% due to underinsurance.

Separate research by Aviva Insurance highlights similar findings, underscoring the need for accurate coverage.

Stay Protected

Ensure your home insurance reflects its full rebuild cost to avoid costly surprises. Regularly review and update your coverage to safeguard against unforeseen disasters.

IT'S YOUR RESPONSIBILITY

Understanding the rebuild cost of your home is critical because your policy may include a "condition of average" clause. This means: If underinsured, claims may be reduced in proportion to the shortfall.

For example:

If your home is insured for €300,000 but the rebuild cost is €400,000, it is underinsured by 25%.

A claim for €50,000 would be reduced by 25%, leaving you with €37,500.

WHAT'S THE WORST THAT COULD HAPPEN?

Suppose you insured your house for €270,000 (its original cost), but it costs €360,000 to rebuild.

If a fire destroys the house, you'd only receive €270,000.

You’d need to cover the €90,000 shortfall yourself, likely through savings or a loan.

HOW TO GET IT RIGHT

Many homeowners are underinsured. A 2022 survey revealed 20% hadn’t updated their rebuild estimates in over five years.

Minimum rebuild costs for a standard 3-bed semi-detached house in 2023 are approximately €312,622 (according to the latest SCSI survey).

Past rebuild costs:

In 2017, the cost was €202,105.

Insuring your home at 2017 rates today would leave you underinsured by 55%.

THE CURRENT TREND

Rebuild costs rose by 6.2% in the past year, a slower pace than 2022 or 2021.

Factors affecting costs:

Shortages of plumbers, electricians, and other tradespeople.

HOW TO CALCULATE REBUILDING COSTS

1. Use Online Tools:

The SCSI House Rebuild Calculator is a free resource recognized by insurers.

Best suited for standard homes in developer-built estates.

2. For Unique Properties:

If you own a one-off or period home, hire a quantity surveyor for precise estimates.

Rebuild costs for period homes are typically higher.

3. Room Measurements:

Calculate the total area by multiplying the house's length and breadth.

Upper floors are usually the same size as the ground floor unless extensions are present.

For differing floor sizes, calculate each separately and add them together.

4. Smart Tools:

Use smart apps for measurements if a tape measure isn’t available.

IMPORTANT REMINDERS

Loss Adjusters:

In a claim, insurers send loss adjusters to verify if the insured amount matches rebuild costs.

High-End Finishes:

Increase your insured sum for custom features like luxury kitchens.

Additional Structures:

Include outbuildings, garages, boundary walls, fences, patios, and decking in your policy.

Recent Renovations:

Post-COVID home renovations, like attic conversions or kitchen extensions, may increase rebuild costs. Ensure your policy reflects these updates.

FINAL STEPS

1. Update Your Policy:

Call your insurer to adjust your policy to reflect the correct rebuild cost.

This may cost €25-€50 but won’t significantly affect your premium.

2. Stay Covered:

Regularly review and update rebuild costs to ensure adequate coverage.

This structured approach ensures you’re well-informed and protected against the financial consequences of underinsurance.

The information presented above from The Sunday Independent may not be an exact reproduction of the article as published in the newspaper.