A Complete Guide to Help You Avoid Underinsurance

A Complete Guide to Help You Avoid Underinsurance

Firstly, for a comprehensive guide on underinsurance and its detrimental effects please read our previous article here https://www.aia.ie/your-complete-guide-to-underinsurance/.

If you are renewing your home insurance and want to ensure you arrive at the correct sum insured to cover your home in the event of a total loss, this article is for you. We outline tips to avoid underinsurance, explain what rebuild costs are, how to measure your home and how to best calculate your correct sum insured.

Due to recent inflation and the increased cost of living, it is now more important than ever to ensure you are adequately covered in the event of a loss. This guide is informed by the most recent recommendations from the Society of Chartered Surveyors Ireland (SCSI) on 15th September 2022. In the event of a claim, your insurer will measure and subsequently value your home based on these rates. Our guide will provide average rebuild rates for standard homes that you may find useful.

Important Notes to Avoid Underinsurance

  • All home insurance policies have the condition that you as the policy holder are responsible for insuring the full reinstatement/rebuild value of your buildings, outbuildings, and contents.
  • For buildings, this must also include debris removal costs, architects, surveyors, consulting engineers and other fees necessarily incurred in the reinstatement of the property. The rebuild rates provided by the SCSI include for these costs.
  • The costs of rebuilding, repairing, and replacing the contents of your home should be reviewed annually to prevent underinsurance. For instance, if you have recently made some renovations, added a garden shed or a high-definition television, then you will need to reconsider the value of your home and contents to make sure you arrive at the correct sum insured that is reflective of this.
  • When estimating your buildings sum at risk, it must be remembered that the rebuild rates provided by the SCSI 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 style homes.
  • House contents such as carpets, curtains, furniture etc., are not covered by the figures and separate contents cover needs to be taken out.
  • The cost of outbuildings are not included in the figures provided by the SCSI and should be added with a best estimate cost into the calculator. However, the figures are inclusive of a standard concrete path around your house.

What are Rebuild Costs?

With home insurance, you need to ensure you are covered for sufficient rebuild costs in the event of a major incident such as a fire. The sum insured is not the market value of your property, it is the cost it would take to completely rebuild your property in the event of a total loss, to current building regulations and standards. As a result, it is essential that you are sufficiently covered in the event of you making a claim.

Rebuild costs are determined by the SCSI and insurers use these to decide if a homeowner is sufficiently insured. When underinsurance occurs, the insurer is of the opinion that the property owner has not fully disclosed the area of the property and is therefore liable for the remaining cost of the claim.

Each figure is specific to the type of property and its location. It must be reiterated, the figures provided by the SCSI are for estate-type homes and not for other house styles.

If you live in a one-off home in the countryside with any additional specifications, then please consider this guide to ensure you are adequately covered. If you have any hesitancy regarding your property or sum insured, then please get in contact with us.  

Let’s take a look at an example of a detached two-storey house based in the North-West. The house has a square meterage of 230m2 or 2475 square feet. According to the SCSI, in 2022 or at renewal, the rebuilding cost for this area is €2,152 per square metre which tells us the property should be insured for €494,960.

This sum is based solely on the house and does not include any outbuildings, large driveway, boundary wall or bespoke fittings located within the property. However, the house has some bespoke fittings and higher than average finishings which are highlighted below.

ItemPrice (€)
House (230m2 x €2,152)494,960
Hardwood floors7,500
Built in wardrobes8,000
Bespoke kitchen with granite worktop20,000
Stone walls15,000
Tarmacadam with kerbs15,000
Bathroom fittings5,000
Patio5,000
Entrance gates2,500
Detached garage35,000
Recommended total sum insured607,960

Using this as an example, a homeowner with the above furnishing and specification would have valued their sum at risk of €494,960 using the rates provided by the SCSI. However, they did not make any further additions for the higher-than-average fittings, driveway, and gates etc., as a result, they are underinsured by €113,000. In the event of a claim, the insurer will apply average, and the homeowner will be liable to pay the remaining costs of the claim.

Again, highlighting the dramatic increase in building materials, labour, and associated fees; in 2021, the sum insured for the above example was €331,430. For 2022 or at their next renewal, the sum insured increases to €494,960 plus outbuildings and higher spec items etc.

Measuring Your Home & Calculating Your Sum Insure

1. Calculate the internal dimensions of your property by measuring the internal finish of walls at each floor level.

2. For two or three-storey houses, the upper floors are typically the same area as the ground floor.

3. Use the figures provided by the SCSI, choose the appropriate house type and specific region, and multiply by the floor area of your home. See our example below.

4. Include the costs for any outbuildings where necessary.

5. You should also consider adding for higher-than-average kitchen fittings, finishes, and if your property is different to estate-type homes. Please take from the example above.

6. It is imperative that you revalue your level of cover every year, using the current rebuilding rates, making adjustments for any improvements or extensions.

7. The addition of expensive contents must be added to your contents sum insured.

8. For professional and accurate advice please contact us at info@aia.ie or call 087 1720173.