We’re all aware that house prices across many regions of the UK have seen a dramatic increase over the last couple of years. For most of us, when we consider the value of our home, we think about property prices and how much we’d put it on the market for.
However, when it comes to making sure you have the right amount of insurance for your home, it’s the rebuild cost that needs to be used – not the market value – and this can prove to be very costly in the event of a claim.
In fact, research carried out by Rebuild Cost Assessment has shown that 35% of those asked based their home buildings sum insured on the market value. Another 20% simply guessed, with 24% using the figure given to them by their bank or building society.1
The result has shown that 9 out of every 10 buildings are insured for the wrong amount and the real headline – underinsurance is affecting around 80% of policyholders.2
To put this into perspective, the estimated number of high value homes in Britain currently underinsured is approximately 587,000.3
Why does this matter?
Quite simply, if your home isn’t insured for the right amount (i.e.: the cost to rebuild it) , your insurer may reduce any claim made by the level of your underinsurance – this is commonly known as ‘the Average Clause’.
For example, if the rebuild cost of your property is £500,000 but you choose to insure for a value of £250,000, then you will only ever be entitled to half of the actual value of any claim made. This includes smaller claims – and the same rule applies to your contents sums insured, so if you need to claim £10,000 you would only get £5,000 where you have not insured the full replacement value of your contents.
This handy video explains the Average Clause in more detail.
Why is the rebuild cost different than the market value?
The market value is quite simply the amount someone is likely to pay to buy your home – taking into account location, size, type of building, etc. This is usually calculated by a professional surveyor.
When it comes to insurance, you need to make sure you have enough insurance cover to rebuild your home, like for like, should the worst happen.
Rebuild costs have increased significantly over the last couple of years, the result of inflation, supply chain shortages and greater demand. According to the Builders Merchants Federation (BMF), prices have risen by between 10% and 15% for products and materials this year. However, some products, such as timber, have seen prices go up by 50% and by as much as 100% for oriented strand board (OSB) and other sheet materials, which are all key housebuilding components
The main factors at play here are pent up demand following Covid lockdowns and the re-starting of postponed building projects, as well as the impact of Brexit on imports from the EU. The loss of around 1.5 million foreign workers throughout 2020 and 2021, many from construction, together with increased demand in other countries for construction materials, such as high Chinese demand for steel and extended lead times for virtually all materials, have combined to create a perfect storm around rebuilding costs.
How to make sure your home insurance gives you the cover you need
As well as the significant risk of being underinsured and facing a reduced pay-out in the event of a claim, it’s also possible to be paying for more cover than you actually need.
Understanding the risks you’re exposed to is key to making the right decisions with your insurance arrangements.
Finding a qualified and reputable person to visit your home to carry out a professional assessment can be time-consuming – and very expensive.
We have partnered with RebuildCostASSESSMENT.com to provide you with a reliable low-cost service from a ‘Regulated by RICS’ (Royal Institution of Chartered Surveyors) organisation.
You’ll receive a comprehensive Rebuild Cost Assessment (RCA) report guiding you on how much you should insure your home for. It is a fantastic and affordable online service that can protect your home from the potentially severe consequences of underinsurance.
Talk to us to find out more.
