More than two thirds of household properties are underinsured and are normally covered for less than 70% of their correct rebuild cost, according to data from RebuildCostAssessment.com*.
A building’s sum insured is the total cost of rebuilding your property from scratch, including any professional fees such as builders or architects. It’s important to note that it’s not the same as your home’s market value, which might be higher or lower than the rebuild cost.
If you haven’t reviewed your home’s sum insured in the last two years, it’s a good idea to check it now, says Aston Lark Private Clients Director, Mark Daines.
“The worst thing you can do is assume the cover you have in place is adequate.
“Unfortunately, for many, the realisation of being underinsured only becomes clear when they are making a claim on their household insurance. The distress and anxiety this can cause can be devastating. Being faced with the choice of not being able to replace a valued item, or even home, or having to put your hand in your own pocket to make up the difference is not an appealing prospect.”
Here are five key reasons to review your building sum insured
1. The sum insured is based upon a mortgage valuation
A mortgage report is not an in-depth survey of the building and therefore the surveyor will often express the rebuild sum as the “minimum requirement”. This means the value stated is often the minimum level required to protect the mortgagee’s interests. This could leave you short of the true rebuild value in the event of a loss.
2. The sum insured is based on a proportion of the purchase price of the property
There is no direct correlation between the retail value of a home and its rebuild cost. For example, this method cannot determine if a property has built in fixtures and fittings such as a fitted kitchen with integrated appliances, which should be included in the building sum insured, or if these items are free standing, in which case they will fall within the general contents sum insured.
3. The building is listed
There are costs associated with owning a listed property which must be factored into the rebuild value of the home.
For example, in the event of a claim, consideration must be given to the increased length of time taken at the planning stage to ensure the repair/rebuild meets with planning authority requirements. This can have a significant impact on the overall cost to rebuild the home. The cost of new systems, such as wiring and plumbing, could also be significant.
4. The sum insured does not include professional fees or demolition costs
These costs can be up to 20% of the overall rebuilding cost and cause a significant shortfall if they are not factored into the sum insured.
5. The sum insured has not been increased following building works
New kitchens, bathrooms and extensions to properties can be expensive investments. Failure to increase the building sum insured upon completion of works could result in significant underinsurance.
In the event of a major disaster such as a fire or flood at the property, not getting the building sum insured right can mean the difference between getting your home reinstated or being made homeless.
Given the potential consequences, investing some time to review your building sum insured is a good investment after all.
If you are in any doubt that the building sum insured is too low, we recommend you obtain a professional valuation of your property.