Why is Under Insurance so relevant in property claims?
One of the most important things for property owners to consider when insuring or renewing insurance for private and business property is the level of cover needed. This applies to both owner-occupied and tenanted properties as well as business premises. When setting the sum insured at inception or renewal, the most common mistake that policyholders make is to mirror the market value of the property.
An adequate level of insurance should cover the ‘worst possible case’ scenario. All of the following items should be considered
- Demolition and removal of the entire building.
- Site security during construction.
- Rebuilding/reinstating the building to current building and local authority regulations.
- Inflation costs during property construction.
- Professional fees for Architects, Engineers or any other professionals needed for the reconstruction.
You are probably still asking, Why is the above relevant?
Most modern policies contain a clause called ‘average’ which will reduce the level of payout on any claim to reflect the level of underinsurance in place at the time of loss. In lay-person terms, a property inured for €200,000 which will cost €400,000 to rebuild if it was completely destroyed in a total loss is only insured for 50% of its rebuilding value. Should a claim happen that costs €100,000 to repair, then the insurance company will only be liable to pay €50,000, which is only 50% of the claim.
The rated used by insurers to value properties for reconstruction is based on rates set by the Chartered Surveyors of Ireland, and these are adjusted based on your property location. It is recommended that policyholders have their homes and business premises checked by a Building Surveyor on a regular basis to make sure they are not underinsuring them. It is also possible to carry out this yourself by clicking the link below and entering your details.
In our experience, approximately 55% of properties in Ireland are currently underinsured. Many times building owners only become aware of this when they have suffered a loss. Since the downturn in the economy in 2008 many people started to reduce their sum insured on both ‘Buildings and Contents’ to make savings along the way. We are now more fearful that the current CoronaVirus or Covid19 crisis may increase this nationwide to an even higher level.
When insuring building there is also a lot of confusion over what ‘Buildings’ and ‘Contents’ include, I have broken them down in the next section.
Buildings – This covers your main structure including all other buildings on your site such as garages and greenhouses, it also included garden walls, gates, paths, driveways and swimming pools (if you are lucky enough to have one of those), Anything that is permanently fixed to the property is also deemed as buildings such as Kitchen Units, floor tiles, timber floors, and built-in wardrobes.
Contents – This section normally covers anything moveable in the property such as furniture, household goods, clothes, kitchen equipment, appliances, food, computers, televisions, personal effects jewellery and cash/money (up to a certain amount).
Generally, insurers will place a limit on the amount covered within a contents policy for ‘high risk’ or ‘high value’ items unless you ‘specify’ them on the policy. Most insurers will cover contents on a ‘New for Old’ basis but may apply ‘wear and tear’ to fabric items.
In some cases, some insurers may offer a sum insured on contents that is a percentage of the sum insured for the buildings. However, we highly recommend that you carry out your own calculation as it is up to the policyholder to get the sum insured right. A simple method to estimate your contents sum insured is to walk through each room and list all the contents contained within it, then write an estimated replacement cost beside that item and do a room total, don’t forget to include every item of clothing that you own. When you have completed each room individually, you must do a complete total of all the rooms, most likely you will be surprised as the end result.
At Stephen O’Connor & Co we offer complete and comprehensive assistance on calculating adequate sums inured for your home, or business property.