Underinsurance may be a term you are hearing much more frequently, particularly over the last year with the rapid rise in inflation across Ireland and Europe.
But why exactly is underinsurance being talked about so much? And how does this affect you personally?
Underinsurance is becoming a significant threat and risk to homeowners, with the rate of underinsurance jumping from 6.5% in 2017 to 16.5% in 2021.
One of the most prominent reasons we are seeing a rise in underinsurance can be put down to the impact inflation is having on building and building materials. In just one year, the SCSI found that building costs rose by a staggering 21%.
With this in mind, it is important to ensure that all of our clients are aware and up to date with the necessary information on this issue.
Keep reading to learn more about what underinsurance is and how it could be affecting you.
By definition, “Underinsurance occurs when the declared reinstatement value of a building falls below the actual value”.
So, what does this mean in context?
Essentially, underinsurance occurs when you may have insured a property for its entire value and at one point in time, the rising cost of rebuilding has meant that any work completed on your property may significantly increase its value, which will often require reevaluating your insurance policy and coverage.
Your underinsured property will often reveal itself when the accident or damage has occurred and you begin to make your claim to your insurance provider, who, unfortunately, can do very little at this point.
Should underinsurance occur, certain serious consequences may arise such as the Average Clause. This clause is present in most policies and could reduce your claim in proportion to the level of underinsurance.
- i.e. if you have a home rebuilding cost of €200,000 but only insure it at 50% of its value, €100,000, this means in the event of a claim you will only be able to claim for 50% of the value of the damage – e.g. if you suffer damage of €50,000, only 50%, €25,000 will be paid out by the insurer and you are subjected to paying the other 50%, or in this case, €25,000 – Central Bank of Ireland
Being aware of the threat of underinsurance means you can now proactively find a solution to avoiding underinsurance and paying out large sums of money for your claim.
1. Regularly review your current insurance policy
It is very important that you make time to review the current insurance policy you have in place and ensure that you are still in agreement with the conditions of the policy and the amount of coverage will you have for your home.
Specifically, at a time when the cost of living is rising dramatically and inflation is affecting prices, this is a key time to take a look at your policy and make sure that your property is covered and protected in the changing economic conditions.
2. Reinsure your home at the correct value after rebuilding
If you plan to rebuild, it is important that you are aware of the new value of your home and make sure that you update your insurance policy in line with this.
When you complete building works on your home and forget to re-insure, this could result in underinsurance and lead you to paying a substantial cost in the event of a claim for an accident or damage.
3. Get a property valuation
If you are unaware of the new value of your home, you need to consider getting a property valuation for your home, especially if you have completed building work recently.
Property valuation is not a service that you have to carry out very often – generally once every two to three years – but it is important to complete if you have made updates and changes to your property that have increased the market value of your home.
There are a number of tools that you can use online to help you with calculating an estimate on the value of your property if you are unsure at present what your property could be worth.
4. Keep up to date with news on inflation affecting the cost of building
Given the current economic climate, it is important to keep up to date on the most prevalent industry news that may have an impact on your home, its value and the insurance policy in place for the property.
If you are unsure about how you or your property may be affected by the current economic climate, it is vital that you contact your insurance provider and discuss your policy to avoid any instances of underinsurance.
If you think your home or property may be underinsured, talk with our team here at MDRB, we are happy to help you to review your insurance policy and make amendments to protect you against underinsurance – contact us here.
Read more on the Personal Lines Insurance we have to offer here.