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As a property owner it is crucial to ensure that your assets including buildings, contents and rental income are adequately insured. Taking buildings insurance as an example, your sum insured should reflect the cost to totally rebuild your home, and this would include not just the materials but professional fees too such as architects and surveyors.
The main reason for getting your sum’s insured right is because of the possibility of underinsurance. Most insurance policies will have an underinsurance clause called ‘average’
This means that if your coverage is too low when a claim occurs, the amount paid can be reduced proportionally.
Example of a claim impacted by ‘average’ due to underinsurance
For example, you have a medium sized property built of brick with a pitched tiled roof with a buildings sum insured of £450,000.
A storm hits the property, and the ground floor is flooded causing £80,000 worth of damage to the property.
The claim investigation assessed that the true rebuild cost of the property was £600,000.
Meaning the property was underinsured by 25%
The ‘average’ clause proportionally reduces the claim payment in line with the percentage of underinsurance.
As the claim was for £80,000 so the payment is reduced by 25% to £60,000 from the insurance meaning you the policyholder will be responsible for the remaining £20,000 to complete the repairs.
Important – when calculating your rebuilding costs, the figure should include the costs for the rebuild, demolition, pathways, professional fees, garden fencing and statutory services.
The impact of Covid lockdowns and Brexit have had an impact on supply chains.
Example of increases in costs:
“The cost of materials to construct a three-bedroom, semi-detached house has increased by 14% or around £7,300 between January and September. It is expected to grow by further 1% or £600 by the end of this year.”
“…as in previous statements supply challenges continue…” With regards to one building material, they state that: “The high level of demand means that a shortfall in the domestic production of bricks, which is already at full capacity, will continue throughout 2022.”
With the Increasing costs alongside rising demand and delays of imports may mean you could be underinsured.
It is good practice to review sums insured with your insurance advisor at least annually when your insurance policy falls due for renewal, but you should also ensure you are aware of external factors that could impact costs outside of your renewal.
To check your sums insured, you can get your property professionally assessed by a RICS qualified surveyor or using a rebuild calculator.
Here are some useful links:
Whilst Index Linking may been applied to your Policy at renewal at the current rate this increase only protects you if your original sums insured were accurate.
