We know that everyone is looking to make savings and reduce costs at the moment, but it’s really important to make sure that in these recessionary times you don’t under insure your home. For those unfamiliar with the term, under insurance is when your insurance policy does not adequately cover the cost to replace your property and personal belongings – it’s simply get the right warranty insurance!
You may have seen the recently published article in The Independent urging people to resist the temptation to under insure their property as it can cause big problems at claim time – and we would echo that sentiment.
People often under insure for two reasons; to either reduce the cost of their premium or because they’re unaware of the true value of their home. When searching for selfbuild insurance cost will naturally be a big factor, but it should not be the only one. There’s nothing worse than hearing about someone who has taken out cover, only to discover at claim time they’re underinsured. That’s why it’s really important that you get the right level of cover to begin with.
The difficulty with a selfbuild is that at the start there may not be a structure of any sort on which to base a rebuild value so we would suggest the starting point should be the builder’s reinstatement cost on completion, including your full fixtures, fittings and decoration. If you are planning to build the property yourself you will need to factor in the labour costs you have saved within the sum insured and it is always worth building in a contingency should your costs increase over your build period and your warranty insurance end up bigger than you think.
If your property is a renovation/extension it can be difficult to provide a value to the existing structure, particularly if the property is in poor condition. We would suggest unless you have a valuation provided by a mortgage company for example, then a good place to start would be the ABI (Association of British Insurers). Their website carries a rebuild cost calculator give you a base to work with when working out what you should insure your property for.
If you do spend more than you had planned simply because you have gone for a higher spec build or because you have had to undertake further unplanned works you must also let us know.
To give an example, lets say a customer insures their home for £200,000. A fire occurs and has caused a devastating £100,000 worth of damage. However, the loss adjusters established that in fact, the house should have been insured for £400,000. Therefore, as the customer only paid for and insured half of the building value they should have done, the claim payment would only be £50,000 – half of the claim.
It’s easy to underestimate the value so it’s really important to make sure that you have an adequate level of cover, otherwise you could find yourself out of pocket.