What Is Under- Insurance

Under-insurance is the situation that exists when the amount of insurance a homeowner has on a property, is no longer sufficient to pay the costs of a claim that arises on that property. The impact of inflation means, that the value of the insurance cover is worth less in real terms than would have been the case some years ago.

As Irish consumers are currently facing increasing rebuild costs, one important impact of this inflation is that there is a risk that the amount of buildings insurance which you have traditionally had in place may no longer be sufficient to cover the costs associated with rebuilding or repairing your property.
It is important that you keep the value that you have your home insured for (also known as your sums insured) up to date as it could have an impact if you need to make a claim under your home insurance in the future.

The following example illustrates the consequence of being under-insured.

Under-Insurance examples:

Your home is insured for €300,000 but the full cost to rebuild the property is €400,000. This means that the home is underinsured by €100,000 or 25%. As a result, your claim would be reduced by 25%.

Example 1 - Partial Loss Claim

  • Partial damage occurs to the home and the cost to repair the damage is €100,000.
  • A deduction of 25% (€25,000) is made from the cost of repairs.
  • Therefore, the most you will receive is a payment of €75,000. You would need to fund the balance of €25,000 yourself.

Example 2 - Total Loss Claim

  • Damage occurs to the home, and it requires a complete rebuild.
  • As the home has been insured for €300,000 this is the maximum payment that can be made.
  • You would need to fund the balance of €100,000 yourself.

*Please note, other settlement factors such as the policy excess are not considered in the examples above.

What is Over-Insurance

In contrast to under-insurance, over-insurance means ensuring that  you do not insure your buildings or contents in excess of their true values. In the event of a loss and subject to having adequate sums insured in place, the most we will pay will be the actual rebuilding cost (buildings) and/or the actual replacement cost (contents).

What action should I take

To begin you should determine if you have You the Right Level of Cover?
Remember that your level of insurance is based on the values that you declare to us, and these may not adequately reflect their current value.

Building cost considerations

Please remember, the rebuild cost of a property is not the same as the market value of the property (market value is what the property is worth whilst rebuild cost is what it would take to rebuild the property in total). It is the rebuild cost you need to consider when reviewing your insurance.

When calculating the amount of building cover make sure it is sufficient to cover what it would cost today to replace what you have today; not just the costs of the bricks and tiles of the original property but the cost to replace any extension you may have added, or a new kitchen or bathroom you may have installed, or an attic conversion you may have made.

Also, have you considered that you may be liable for demolition costs, site clearance costs or the added costs of meeting new building regulations and so forth.

Contents Insurance considerations

For most people, the value and amount of the contents in their home will increase over time. Also, you may have recently purchased new furniture, a computer, or jewellery.

It is advisable to go from room to room and ask yourself, how much would it cost to replace everything if you had to buy the items new.

Do I need to take any further action?

We strongly advise you to review your sums insured now and regularly in the future to make sure they are adequate.

The Society of Chartered Surveyors Ireland website provides useful, independent advice on current rebuilding costs and a rebuild cost calculator. Please note that this tool is for guidance purposes only and the rebuilding rates are for speculatively built homes i.e. estate-type homes and should not be used for other house styles such as one-off homes in the countryside or period properties. You may also wish to seek independent professional advice in relation to this matter.

If you need to amend your sums insured, you can contact us on 0818 01 01 01.

Secure payments with: Mastercard Visa