MILLIONS risk sleep-walking into a home-insurance nightmare due to rising costs of repairs and replacements of lost or damaged items.
Households will lose out if they have inadequate cover to account for this, or even none at all if they have ducked out of paying hefty premiums. Laura Miller tells how to avoid being caught out . . .
WHAT IS HAPPENING?
A PERFECT storm has been brewing — and threatens to wreak serious financial damage.
Sky-high inflation in recent years has sent the costs of repairing homes and replacing items soaring and this means more and more homes are now underinsured.
A growing number are unknowingly signing up to policies that do not fully meet their needs, or burying their head in the sand and taking out no cover at all.
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The crisis concerns both buildings insurance, which relates to the home’s physical structure and is usually required to secure a mortgage, and optional contents cover.
Failing to review and update policies in line with rising costs can leave you drastically out of pocket should you need to claim.
Exclusive research for Sun Money undertaken by price comparison websites Compare the Market and MoneySuperMarket shows the scale of the problem with contents insurance.
MoneySuperMarket data reveals most three-bed households are protected up to just £10,000 to £20,000 — around a third of what they need.
Compare the Market found one in ten house-holds have no contents policy at all, so no protection for their possessions if damaged, lost or stolen.
For both building and contents cover, the gap between the sum your insurance provider says it will pay out versus the actual cost to repair or replacement is known as underinsurance.
Several factors can lead to this but are often missed by households, until they look to claim and it is too late.
Inflation, which makes goods and services more expensive, is a big cause of underinsurance.
The House Rebuilding Cost Index measures the cost to rebuild your home if, for example, it is destroyed by fire or flood.
And the bad news is, this rose by 21 per cent in the two years to January, as the prices of raw materials and labour have soared.
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Hannah Davidson, who is a senior underwriting manager at insurance firm Aviva, says rebuild costs have, in fact, been rising “significantly” for the past six years.
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Many building insurance policies do offer cover that increases in line with inflation.
But they still rely on a correct original valuation of the property, which it is the homeowner’s responsib-ility to provide when they take out a policy.
This means valuing not only the house itself, but also outbuildings, garages, walls and fences as well as features such as patios and terraces.
Ms Davidson adds: “People also need to consider the quality of fixtures and fittings with-in the property, as these can significantly alter the rebuild cost.
“For example, a £30,000 kitchen fitted a number of years ago is now likely to cost significantly more than this if it needs to be replaced like-for-like.”
HOMEOWNERS NEED TO REVIEW POLICIES
HOUSEHOLDS with buildings insurance cover capped at a certain sum are advised to review this to check it is enough, and increase their protection if needs be.
This is particularly the case if they have a larger property or have invested a significant amount in home improvements, says insurer Aviva.
To help you assess rebuilding costs, the Association of British Insurers has a free calculator at abi.bcis.co.uk/calculator/calculator.aspx.
Inflation can also make replacing valuables cost more than contents cover provides.
Items most often lost, stolen or damaged include jewellery (11 per cent) laptops and TVs (11 per cent) and mobile phones (ten per cent), says Compare The Market — and the prices of all of these have significantly increased in recent years.
Julie Daniels, insurance expert at Compare the Market, says: “Although there is no legal requirement to possess contents insurance, the cost of replacing lost, damaged, or stolen items can be significant.”
HOW TO AVOID UNDERINSURANCE
THE Association of British Insurers has these tips for home contents cover . . .
- Go from room to room writing down everything you own, from floor to ceiling and including in sheds.
- Find out today’s cost to replace every item.
- If limits apply to your policy, note any items not fully covered.
- If spending signfificantly on, say, furniture, jewellery or electronic equipment, you may need to get your policy amended to reflect this.
- Update your list each year before renewing cover.
And for reviewing your building insurance . . . - Some policies provide standard rebuild cover of up to a certain limit. Others ask customers to detail the rebuild cost for their home.
- Use the Building Cost Information Service calculator at abi.bcis.co.uk/calculator/calculator.aspx.
- If having work such as an extension done, which will affect rebuild cost, it is best to notify your insurer.
‘I don’t want to risk large outlay if accident happens’
LUCY SPENCER, 34, from Bracknell, Berks, took out new house insurance after worrying she was underinsured.
She was on an Admiral Gold home policy but upgraded to Admiral Platinum.
Lucy the director of private tutoring company Education Boutique, said: “One of my friends had a huge flood due to eroding water pipes and they had cover that wouldn’t pay out initially to cover repairs.
"And alternative accommodation insurance was not included. They lost a year and so much money getting everything fixed.”
Another friend’s house had water damage when they were away.
They needed emergency support but were not covered, so had to pay thousands in call-outs at Christmas.
Lucy, who bought her dream four-bed house a couple of years ago, added: “It’s so important to protect it and not put myself at risk of a large outlay if something happened.”
She was previously covered for unlimited buildings cover and £75,000 contents.
Now she has £150,000 contents for personal possessions plus £5,000 accidental damage, alternative accommodation cover up to £100,000, as well as family legal protection and boiler cover.
Her premiums have gone up from £55 per month to £95 but she’s bundled it with her car insurance which makes the car cover cheaper.
She added: “It would be good when purchasing a lesser insurance for examples of what will not be covered to be given.”
