Don’t make the mistake of under-insuring your home and contents, or you might have problems if you need to make a claim.

When taking out home insurance, you may be tempted to state a lower rebuild cost for your house or to underestimate the replacement cost of your home’s contents in order to get a cheaper quote.

You may think that you’re saving money by under-insuring, but if you need to make a claim it could end up costing you dearly.

Why is it important not to under-insure?

Whether you need to claim following a fire, theft, or flood, the insurer may send out an investigator called a loss adjuster to determine the value of the property lost.

‘Applying average’

If the insurer decides that the amount insured isn’t sufficient to cover what was in your home or the rebuild cost of your home, it may decide to ‘apply average’ to a claim.

Applying average means that where the sum insured isn’t sufficient, the insurer can reduce its liability by invoking an ‘average clause’, which is contained in many home insurance policies.

If the insurer applies average, the sum to be paid out is calculated using the following formula:

The sum insured, divided by the true value at risk, multiplied by the loss = the sum paid out

As a case study, a policyholder insures his buildings for €150,000 when the actual value of the buildings is €200,000.

A chimney fire occurs that results in €6,000 worth of damage, but when they approach their insurer the payout is worked out as:

€150,000/€200,000 x €6,000 = €4,500

This means the policyholder has had €6,000 worth of damage, but the insurer will only pay out €4,500. This is despite the policyholder taking out insurance to cover €150,000 worth of buildings

What’s your property really worth?

An insurance provider will want to know the repair and replacement costs of both your home and the possessions within it in order to evaluate the level of cover you need.

The insurer will rely on you to give it a clear picture of the rebuild cost and content value of your home, so it’s important to know how to work these figures out.

Overvaluing the rebuild cost of your property or your contents cover could mean that you’re paying more money than you should be for you home insurance.

Your insurer will only ever pay the eventual cost, regardless of the value stated on your policy.

Calculating buildings insurance

One of the best ways to calculate the rebuild cost of your home in Ireland is to go the Society of Chartered Surveyors Ireland website and use their rebuilding calculator, particularly as this is what most loss adjusters will use to determine the rebuild value of your home:

https://www.scsi.ie/advice/house_rebuilding_calculator

Calculating contents insurance

There are a couple of ways to calculate the value of your home’s contents. Firstly by taking the time to go through each room of your home and doing the calculation on a manual basis.

It can be time consuming to calculate the value of your home’s contents, but it’s an important thing to get right. Remember that your home’s contents change regularly, and if you buy any particularly expensive items – like gadgets or jewellery – you’ll need to tell your insurer so your cover can be increased. Insurers usually set a maximum limit for individual items, likely to be in the region of €1,500, so if you have items worth more than this they’ll need to be listed separately on your policy.

Blanket coverage of contents

An alternative to telling your insurer the exact value of your contents is to take out blanket coverage, which offers cover up to a certain amount.
For example you may own contents valued at €25,000, but your insurer will cover you up to €40,000.
Blanket coverage provides you with a buffer in the event that your contents value increases, and means you don’t have to remember to ring your insurer to increase your cover. This cover isn’t necessarily more expensive than taking out lower contents insurance, and offers consumers priceless peace of mind.