How to avoid over or under insuring your home

Everyone knows insuring your home is important; it’s a way to protect perhaps the most valuable investment you will ever make. It’s frequently one of the first steps for a new homeowner, and provides tremendous peace of mind – as well, of course, as assistance when disaster strikes.

But just as your home evolves and changes over time, so too should your insurance cover; it’s not a simple matter of ‘set it and forget it’. In fact, you should quickly review your home insurance every single year, to ensure that your policy is at the correct value for your property. Over-insuring, and under-insuring, a home can be a costly error – and with re-build costs increasing, it’s never been more important to get it right.

So let’s start with one of the most basic questions anyone would ask; how much should I insure my house for?

Value vs Cost

One of the most common misconceptions about home insurance is that it’s valued against the market price of your property. That, of course, is normally far higher than the actual cost to rebuild the structure and any outbuildings you may have – but it’s the rebuild cost and an allowance for some inflation that the policy should cover you for. Calculating your insurance based on market value will likely leave you over-insured and shelling out for cover that you’ll never be able to claim.

When thinking about home insurance one should assess the current cost of the reconstruction of all buildings, including outbuildings and allow for inflation.

The rebuilding cost of the property, not the market value, should be used when seeking home insurance quotations.

In essence: if, with some inflation it would cost €215,000 to rebuild the home and outbuildings, then that’s the sum it should be insured for.

It’s vital to note though, that rebuild costs will fluctuate – which can easily lead to your property being under-insured. A March 2021 report by the Society of Chartered Surveyors Ireland shows that rebuild costs have increased by a national average of 7.3% over the past two years1. When the cost of rebuilding your home increases, the home policy should reflect that.

It’s why we recommend re-assessing the policy on an annual basis – and the SCSI’s House Rebuild Calculator can help identify the current rebuild value of the home. And their website is a great resource of information.

Recent market research commissioned by AVIVA established that, while the majority of homeowners were confident that they had adequate home rebuilding and contents cover in place, a significant 36% of respondents believed that they could be underinsured. That’s a lot of uncertainty. The good news is, this can be quickly addressed. My advice, to those homeowners, is to review the adequacy of your cover each year and don’t leave yourself exposed if you need to make a claim. Use the SCSI tool, it’s easy to use and accurate. And importantly at Aviva, we use the same data to review adequacy of cover with our claims.

David Lyons, Senior Claims Manager

It all adds up

Spending more time knocking around the house has seen huge numbers of people tackle home improvement projects – from revamped bathrooms and refitted kitchens to loft conversions and new conservatories.

In fact, our research found that 1.5 million homeowners have spent over €11 billion in the last 12 months on home improvements, and over 861,000 homeowners have plans to undertake further improvements to their homes.

And while your insurer doesn’t need to know about paint jobs, carpet fittings or other cosmetic changes, it’s a standard condition on most policies to inform your insurer about structural renovations and alterations before you begin.

Not only will the value of the home likely change, but the policy maybe impacted by everything involved; for example, the workers and materials on site, or parts of the home being exposed to the elements for a period of time.

So, when considering undertaking a new project around the home, make sure to consult your insurer beforehand. It could also be a good idea to look at taking out extra accidental damage cover for the home’s contents, as the standard policy won’t cover any mishaps during renovation.

At Aviva, we’re committed to protecting our home customers, that’s why we offer Help in a home emergency cover as standard. To learn more about this and the other great benefits offered go to HomeChoice – Aviva Broker or speak to your Aviva Business Development Manager.