Getting home insurance wrong could prove costly

It's one of those things that no-one ever wants to countenance – all their worldly goods lost to fire or flood along with their home. Still, that's what insurance is for, isn't it?

Well that depends on the homeowner. While many people adjust their annual home and contents insurance premiums to take account of new computer equipment, jewellery or art, all too many fail to examine the other side of the equation – the cover on the building itself?

Some insurance companies do index link cover on buildings to reflect changing building costs; others don't. For those who do, the reference point generally being the Society of Charters Surveyors Ireland annual Guide to House Rebuilding Costs, which is published today.

And the warning is stark. Those who have done nothing on buildings cover for the past four years will, according to the survey, be underinsured by around 20 per cent as this year’s increase of 6 per cent on average comes on top of increases of 5.5, 5 and 2 per cent over the previous three years. While the figure in Dublin might be slightly lower, it will be higher outside the capital.

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If a property will cost €400,000 to rebuild – as against what it is worth on the market – and it is insured only for €300,000, the owners had better hope it doesn’t need rebuilding. Otherwise they will need to find the missing €100,000.

But it not just providing for the apocalyptic. Someone in the position above who has to replace, say, a kitchen at a cost of €60,000 will find the insurer willing to pay only €45,000 of that, regardless of the €300,000 buildings cover as claims are generally managed pro rata.

Getting it wrong could prove costly.