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Underinsurance

Sufficient insurance for your home and belongings can bring you peace of mind. But what if you’re underinsured and you don't know it?

At Liberty Insurance, we’re always looking to the future while also looking out for yours.

One such way we do this is by keeping you informed when it comes to anything that might affect your policy, such as being unknowingly underinsured. For instance, if the cost to rebuild, reinstate, or replace your buildings or home contents is inaccurately stated in your current Liberty home insurance policy, you could be underinsured.
 
But what exactly is underinsurance, and why is it important to get your insurance cover right? 

Underinsurance and how it affects claims

Underinsurance refers to a situation where a property and/or its contents is insured for less than the cost to rebuild, reinstate, or replace them. 

If you need to make claim, your home insurance policy will cover the full cost required to reinstate your property to its pre-accident condition. However, you might have underestimated the cost to rebuild or reinstate your property when taking out your household policy. In this case, the current insurance cover you have purchased will only partly cover that cost, meaning you're underinsured.

 

Rebuild cost vs market cost

Rebuild cost refers to the cost to replace or reinstate your home and outbuildings to an equivalent standard, with the use of equivalent materials and equipment factored. It should include the cost of demolition and the cost to remove debris after a loss, the cost of professional fees, and the costs associated to comply with relevant building regulations. Rebuild cost doesn’t include the cost of the site, however, and with regard to insurance, rebuild cost is what’s most important. It could be higher or lower than the market value, but the cost to restore a property, and not the market value of the house, is what you should insure.

Market value, on the other hand, is the price your home could sell for if placed on the market. It reflects construction costs, the cost of the land, the supply and demand for houses, and the location of the property.   

For an accurate estimate of the cost to rebuild your home, check the Society of Chartered Surveyors’ House Rebuild Calculator . If you're unsure about the correct rebuild cost of your property, we recommend seeking professional advice to help you with this. The professional will make sure your rebuild costs are correct. 

 

Examples of underinsurance

Here are two examples of underinsurance when applied to rebuild costs and contents loss. 

Rebuild Costs

If a property is insured for €400,000 but the rebuild cost of the property is €500,000, the property is underinsured by €100,000, or 20% of the rebuild cost. This will impact any loss suffered by the policyholder.

We will use the above example to see how much this customer can claim if they suffer a €50,000 loss to their home:

Claim value                                 €50,000

Less underinsurance (20%)     €10,000

Sum due to the customer         €40,000

In this example, the customer would receive €10,000 less than the cost of their loss.

Contents

The same principle applies to a Contents claim. If a policyholder has contents insurance cover for €30,000 but the value of contents in the property is €50,000, the property is 40% underinsured for contents.

If this customer has a €5,000 claim, the payment of the claim will be as follows:

Claim value                                  €5,000

Less underinsurance (40%)      €2,000

Sum due to the customer          €3,000

In this case, the customer would receive €2,000 less than the cost of their loss.

How could you be underinsured?

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Home improvement

Making changes to your home, be that a kitchen extension, attic conversion, or even new windows and neglecting to inform your insurer. These changes could alter your property rebuild amount.

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Rolling renewals

If you rolled forward your policy information at the point of renewal, including rebuild or replacement costs. The issue here is that previously accurate policy information could be out of date and fails to reflect year-on-year inflation. This scenario is common as building material and labour costs often increase.

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Accidental underestimation

If you inaccurately estimated the cost to rebuild your house when you initially purchased your policy.

How Liberty can help

At Liberty, we want you to have the appropriate level of cover so that in the unfortunate event you need to make a claim, you have the peace of mind that comes with knowing you’re fully covered. If you'd like to get an accurate estimate of your rebuild costs, check the Society of Chartered Surveyors’ House Rebuild Calculator.

And if you're worried that you may be underinsured, or if you wish to update your policy, our Customer Service team is always here to help.

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