What is Under-Insurance?
Under-insurance happens when you insure your property for less than it would cost to rebuild it or replace the contents. In the event of a claim, someone under-insuring their home may not receive the full amount necessary to rebuild, repair or replace items as new.
Inflation
We know that insuring your home is important; it’s a way to protect perhaps the most valuable investment you will ever make. As your home evolves and changes over time, so too should your insurance cover. With rising inflation and the cost of building increasing in recent years, as well as many deciding to renovate or extend their homes, it’s never been more important to get it right.
Rebuild Costs
With rising inflation resulting in higher costs for materials, energy, and labour, you could be at risk of under-insuring your home. Research conducted by the Central Bank of Ireland has found that one in six Irish homes don't have sufficient cover (1) as rebuild costs have increased in recent years. To learn more about under-insurance and how to avoid it, read below.
1) Independent.ie “One in six homes have inadequate insurance cover in place”
published on 23 September 2022.
Could I be under-insured?
Yes, you could be under-insured if you haven’t reviewed your sums insured recently. Many of us lead busy lives and may not be quite up to speed with how higher inflation has led to higher costs for rebuilding, repairing and/or replacing items.
You may also be under-insured if you have not reviewed your sums insured since renovating or extending your home or if you underestimated the sums insured when taking out your policy.
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Under-Insurance Claims
If you are under-insured, and in the event of a claim being made on your policy, you run the risk of only a portion of your claim being paid out. Also, under most policies, an ‘average’ condition will apply which in the event of under-insurance will reduce your claim payment by the percentage you are under-insured. Here are some examples of how under-insurance could affect the payment of a claim:
Partial Damage
- The home is insured for €300,000 but the full cost to rebuild the property is €400,000.
- This means that the home is under-insured by €100,000 (25%).
- Damage occurs to the home and the cost to repair the damage is €100,000
- Where the condition of average applies a deduction of 25% (€25,000) is made from the cost of repairs.
- Therefore, the most the policyholder will receive is a payment of €75,000*.
Total Loss
- The home is insured for €300,000 but the full cost to rebuild the property is €400,000.
- This means that the home is under-insured by €100,000 (25%).
- Damage occurs to the home where it requires a complete rebuild.
- As the home has been insured for €300,000* this is the maximum payment that can be made.
- The outcome is the same when the condition of average applies.
In both of the above scenarios the payment made to the policyholder is not sufficient to fully repair the damage caused.
*Subject to policy excess, terms, conditions, and exceptions of the policy.
How do I check and update my policy?
If you find your home is under-insured, you can update your policy at any time by contacting us on 0818 33 33 33 (or if you have recently received your Renewal Offer and have yet to renew, please call us on 0818 33 33 35), Monday to Friday 8:45 am to 5:30 pm or on Saturdays 10:00 am to 2:00 pm.
Please note that increasing your sums insured may increase your overall insurance costs.
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Under-Insurance FAQs
We've gathered together all the details you need to better understand your under-insurance needs. Take a look at our FAQs and learn more about how we can help you protect what matters to you.
The amount you insure your home and contents for is known as the ‘sums insured’. The sums insured is set by you, our customer. Getting your sums insured wrong could end up being very costly if you need to make a claim.
To avoid under-insuring your home, you simply need to review your sums insured regularly and set them to an adequate amount.
Remember it’s key to insure your home for the rebuild cost and not the market value. Your rebuild cost should include any associated costs such as architect fees, debris removal and regulation fees.
The Society of Chartered Surveyors Ireland SCSI’s House Rebuild Calculator provides guidance in calculating this figure. They also provide information on how to find an expert should you wish to get your home surveyed by a local chartered quantity surveyor.
You will need to know the size of your house to use the calculator. Choose the appropriate house type and region and insert your total floor area. You can add the cost of a garage if applicable.
You should add higher-than-average kitchen fittings, finishes, etc if appropriate. You can also add for any other outbuildings e.g., studio, office. Once you have entered all the required information, the figure generated will be a minimum base guide for rebuild costs for insurance purposes.
You’ll also find some helpful information online by searching for the SCSI Guide to House Rebuilding Costs for Insurance Purposes 2021.
There are some practical steps you can take now as a consumer:
Firstly, it’s important to understand that home insurance can include two categories: covering your building(s) and the contents therein. How to estimate the cover you need for your building(s) is shown immediately above with information of estimating the value of contents covered immediately below.
With your contents, it’s important to insure them for their replacement value. Consider how much it would cost to replace them as new if they were destroyed. An easy way to estimate the value of your possessions is to go from room to room and tot up the cost to replace every item as new. Make a list of the items you would normally take with you if you sold or moved out of your home and need to be covered - not forgetting items that may be stored away out of sight.
No, please don’t wait until renewal as you may not be fully protected in the event of a claim. We are advising our customers to review their home insurance policy now and amend the sums insured if necessary.
It’s important to update the sums your home is insured for regularly, it’s not a case of set and forget. Any updates to your home can increase the rebuild cost, as well can inflation, therefore it’s key to review your policy on a regular basis.
An Post Insurance Home Insurance is underwritten by Aviva Insurance Ireland DAC.
