Why rebuild cost assessments matter for your home insurance by Everywhen. The new name for Drayton
According to RebuiltCostASSESSMENT.com, 68% of residential properties in the UK are underinsured and 25% are overinsured. This means only 7% of homes are insured for the amount they actually need.
When you take out home insurance, one of the most important decisions you can make is the amount you insure your property for. If the figure isn’t right, one of two things can happen. Too high and you might end up paying more for your policy than you need to. But if it’s too low, and you ever need to make a claim, you could face a bill that you weren’t expecting. This is known as underinsurance, and it can leave homeowners more exposed than they realise.
What is underinsurance?
Underinsurance happens when the level of cover chosen isn’t enough to rebuild your home today. It usually happens when rebuild costs are based on outdated information or rough estimates that are no longer accurate. It can also happen if the cover limit is set lower than it needs to be (either accidentally or intentionally) to reduce the premium.
No matter how it happens unfortunately the outcome is the same. Your home is insured for less than it would cost to rebuild it on the day you make a claim.
What happens if I’m underinsured?
The ideal outcome is that your home stays safe and secure, and you never need to make a claim, with your cover in place simply to give you confidence and peace of mind should anything unexpected happen.
Unfortunately, it’s not always that simple. Research shows that more than a quarter of UK homeowners have had to make a claim on their home insurance at some point. The most common causes of home insurance claims are water damage accounting for 27% of the claims, followed closely by accidental damage (27%), repair costs (21%), flood or storm damage (18%), theft (12%) and fire or smoke damage (11%).
If you’re underinsured, the cost of rebuilding your home will be higher than the amount that you’ve insured it for. This means you don’t have the protection you need and depending on how much you’re underinsured, your insurer may decide to reduce your payout. They do this in line with the percentage you are underinsured, and this is known as the ‘average clause’. We’ll explain that in more detail below.
If the gap between the insured amount and the true rebuild cost is significant, the insurer may be entitled to void the policy entirely. Not only will you not get a refund of your premium, but you’ll be left without cover and without the ability to make a claim.
What is the average clause?
Most home insurance policies include what is known as an average clause. This allows the insurer to reduce a claim if the property is insured for less than its actual rebuild cost.
The reduction is made by the same percentage as the amount of underinsurance. For example, if you claim £80,000 on a property that is 25% underinsured, the insurer may only pay £60,000. In this situation, the remaining £20,000 would need to be covered by the homeowner.
Many people are not aware of how the average clause works, or even that it exists, which is why getting your rebuild value right is so important.
How to avoid underinsurance
Here are some practical steps that can help make sure that your home is insured for the correct amount from the offset.
- Get a professional valuation from an expert
- Don’t use general market prices or sold prices, as these don’t reflect rebuild costs
- Be wary when using online calculators to get the value of your property as these can be inaccurate
- Check if VAT applies to any parts of the rebuild
- Learn more about the average clause and how it can impact the payout of your home insurance policy
- Keep a record of all of your home contents and try to insure them for their full new-for-old replacement value
- Regularly reassess your home to keep on top of any changes that arise, especially after renovations or improvements
Why an accurate rebuild costs assessment helps strengthen your cover
A rebuild cost assessment (RCA) gives you an in-depth calculation of how much it would cost to rebuild your property from the ground up. It is conducted by an expert and looks at the current cost of materials, labour and professional fees. Once the assessment is complete, you will be given an accurate figure for how much it will realistically cost to rebuild your home which you can give to your insurer.
Getting an RCA done proves that you have done everything you can to insure your home correctly. While underinsurance can still occur over time due to inflation and building costs changes, having an RCA puts you in a stronger position legally and can support your case if there is a dispute. To stay fully protected, experts recommend updating the assessment at least every three years or after major renovations.
To find out more about underinsurance and how our exclusive home insurance offer supports Forces Pension Society members, speak to a member of the Everywhen team on fps@everywhen.co.uk or call us on 01603 320515.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems, we recommend that professional advice be sought.
