10 steps to avoid underinsuring your home

Nearly 7 million homes in the UK are underinsured. You could even unintentionally be one of them if you’ve overlooked things like a built-in sound system, or working from home.

When you’re taking out buildings insurance, underestimating the total value of your property may feel like you’re saving money as you’ll pay a lower premium, but beware, it could be costly in the long run.

If you’re unlucky enough to be underinsuring your property and need to make a claim that is higher than the insurance on your property, the insurer may invoke the ‘average clause’.

This is calculated as the sum insured, divided by the true value at risk, multiplied by the loss. So, to put that in plain English, if a building insured for £250,000 should have been insured for £312,500, the effect of 20% underinsurance on a £125,000 claim will see the insurer paying only £100,000, leaving you £25,000 out of pocket.

With the stakes so high, it’s important to get the right insurance cover for your home. So at Homelyfe, we ask you a series of questions to ensure that you’re getting the best insurance for your home and circumstances. Here are some additional things to consider when insuring your home, giving you the knowledge to protect your home:

1. It’s not the market value

Your insurance covers the cost to repair or rebuild the property should it be damaged. This is not the same as the market value, which takes other elements into consideration, such as location and kerb appeal. If you just insure your home for the market value, you could be paying a far higher premium than is necessary.

If you have taken out a mortgage on your property, the lender will have carried out a valuation survey on your home. This will be an accurate estimation of the sum insured for your property. Alternatively, you can register for free with BCIS (part of the Royal Institution of Chartered Surveyors) and use their rebuild calculator or hire a surveyor to calculate the value for you.

When taking out insurance with Homelyfe, you will be asked a series of questions to determine if your insurance should be calculated according to bedroom-rated insurance (Homelyfe standard policy) or sum-insured insurance (Homelyfe comprehensive policy).

Bedroom-rated insurance

The cost of rebuilding your home based on the number of bedrooms you have. The insurer will provide a blanket figure to ensure that you are not underinsured. This is used for smaller, lower value properties.

Sum-insured insurance

This is the cost to rebuild your home from scratch, i.e. building materials and labour. This is used for larger, higher value properties.

2. Remember value added, from floor to roof.

Your buildings insurance will cover fixtures and fittings, such as kitchens and bathrooms. If you have an extravagant kitchen with all the latest mod-cons, you need to include this in your sums-insured.

And it’s not just the kitchen and bathroom: anything that’s built into the property can be included here, whether it’s an extensive marble floor, solar panels on the roof or a built-in sound system in every room. Consider anything that is ‘fitted’ i.e. screwed to a wall, built into the property and not easily removable, to be included in your buildings insurance rather than contents insurance. For example, built-in wardrobes would be included in buildings insurance, but a free-standing wardrobe would be covered by your contents insurance.

3. Underinsure at your peril

Whether you have a standard or comprehensive policy will dictate in what events your building is covered for damage.

Standard insurance is perils-based, which means that your property will be covered by a list of specified perils. This includes, but is not limited to fire, lightning, explosion, earthquake, storm, flood, weight of snow, escape of water, and subsidence.

Comprehensive cover will give you an “all risks” policy, which covers all physical loss or damage, except any specifically excluded in the policy, which are usually things like lack of maintenance.

4. You’re on the list

If you’re lucky enough to own a listed property, you’ll already know that there are special considerations to make when rebuilding or renovating, and this applies to your buildings insurance too. There are over 350,000 listed properties in the UK which require permission from English Heritage and your local council if you want to make renovations on the property.

If you own a listed building, you will probably need comprehensive cover. It is best to get a surveyor to do a full valuation survey of the property to ensure that it is fully covered under insurance for all eventualities.

5. Keep it together

It is always beneficial to arrange both buildings and contents cover with the same provider. This can not only result in a more competitive premium but it avoids duplication of cover and potential complications in the unfortunate event of a claim. On a practical level, you’ll only need to liaise with one insurer and avoid the need for multiple visits from loss adjusters should a claim arise. It will also ensure beneficial terms should there be a need to rely on cover that is granted under the alternative accommodation section of the policy and for expenditure that may be incurred for the appointment of professional services including surveyors etc. should the claim relate to fire, flood or escape of water.

That said, you should also be wary of over-insurance. You may have dual insurance on some items, for example gadgets insurance which conflicts with contents insurance and could mean you end up paying your premium twice. 

6. Flat out different for leaseholds

If you have bought a flat, then you will likely own a leasehold of the property, which means the part of the property that you own is yours as agreed in the lease for a specific length of time. When the lease ends, the freeholder of the building will become the owner again, unless you extend the lease.

If you have a leasehold, then it’s likely you won’t need buildings insurance, as the building should be insured by the landlord who owns the freehold. However, some tenants club together to buy shares of the freehold and then insure the property as a whole. This can be beneficial in insurance situations.  For example, in a building where person A owns the freehold upstairs and person B owns the freehold downstairs, person A has buildings insurance, but person B does not. There is a fire that destroys the home. Person A’s insurance will only cover the rebuild of the first floor, not the ground floor, so the property cannot be fully rebuilt. If A and B took out joint buildings insurance then the entire building and both properties would be covered.

7. Within the bounds

As well as covering the main building, your buildings insurance will cover anything within the boundary of your home, including:

  • Outbuildings (sheds, summer house etc.);
  • Garden walls, fences, gates;
  • Paths and driveways;
  • Patios, steps, terrace;
  • Ponds, fountains and bridges;
  • Swimming pools, permanently fitted hot tubs;
  • Tennis courts

If you have an outdoor feature that would cost more than £5,000 to rebuild, then you may need to declare it or you may face the average clause and not get the cover you need when you make a claim.

8. Don’t let your insurance subside

Problems such as subsidence can be trouble for property owners. It tends to happen in buildings built on clay soil as it expands and contracts drastically depending on rainfall. This can lead to your property shifting on its foundations, sinking into the ground and can result in severe structural issues.

When insuring your property, the postcode will indicate whether you live in an area that is at risk of subsidence. If you are in a high-risk area, it is likely you’ll have a higher premium of around £1,000 – £5,000, but you will still be insurable.

If you do live in an area at risk, it will be your responsibility to monitor your property for any signs of subsidence, and notify your insurer if the cracks start to show, literally.

9. Revalue following renovation

If you’ve done any extensive renovation to your property, such as an extension or a newly fitted kitchen, you should get your home revalued as the sum insured will have gone up and you may be at risk of being underinsured for the entire property.

Additionally, if you are having an extension built, you should check that you are insured while it is being built. The last thing you want is for your home to be damaged in the process of making it better – and then not be covered for it! Architects will often present you with a minor contract works agreement between you and the builder which covers insurance. This means that the builder will pick up any damage that is incurred during the work. Alternatively, you could become a joint policyholder so that the builder is covered under your insurance.

10. Working from home?

You should always notify your insurer if you’re working from home and expect visitors as this can affect your policy. For example, if you’re a physio with a studio in your home, you will have members of the public coming onto your property who could sue you if they were injured by something on your property. You should keep everything in a good state of repair to ensure this does not happen, but if it does, you will need additional insurance to cover you.

So to avoid being stung, make sure you follow these ten steps and keep your buildings insurance up to date. This means when Homelyfe reminds you that it’s time to renew your policy, you should check whether there have been any changes to your property or anything within the boundary of your home.

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