Underinsurance in thatched and listed homes

Underinsurance is a common problem that can have devastating consequences should you need to make a claim.

Underinsurance occurs when a property’s insurance coverage is insufficient to cover the rebuild cost in the event of damage or loss. This issue can have severe financial consequences for homeowners, landlords, and tenants alike.

What are the consequences of underinsurance?

One of the primary risks of underinsurance is receiving a reduced payout if you’re making a claim. Insurers typically apply the “average clause,” which means the payout is proportionally reduced based on the level of underinsurance. For example, if your property is insured for only 75% of its true value, any claim would be reduced by 25%, leaving you to cover the shortfall.

The rebuilding cost of a property often exceeds its market value, particularly when factoring in demolition, debris removal, specialist reconstruction and architect’s fees. Without adequate coverage, homeowners may struggle to fund repairs or rebuilds, leading to financial hardship or even the loss of their property.

Regularly reviewing and updating your insurance policy to reflect changes in property value or renovations ensures adequate coverage and safeguards against the financial dangers of underinsurance.

Underinsured contents

Contents insurance is also affected by underinsurance. Failure to accurately assess the value of belongings can result in insufficient compensation, making it impossible to replace essential items. It’s easy to underestimate the total value of your home’s contents. Our contents calculator can help you to estimate the value of your possessions within your property. We also strongly advise you to obtain up to date valuations for more expensive or rare items such as jewellery or fine art.

When you’re using our Contents Calculator, don’t forget to include items such as:

• Outbuilding contents e.g. sports or garden equipment, machinery, tools
• Carpets and curtains
• Wall fixtures
• Items stored in your loft or attic

Completing a room check may seem like a daunting or time consuming task but is worthwhile to help ensure you’re adequately covered in the event of a claim.

How do I know if I am underinsured?

Underinsurance occurs when the figure calculated by your insurer to cover the damage is more than your building’s sums insured (which should represent the full rebuild cost of your property) and generally comes to light in the event of a claim.

Every policyholder has to declare an accurate sums insured amount. If reasonable care is not taken this may be deemed as a deliberate, reckless or careless misrepresentation. If this is the case, your insurer might cancel your policy and refuse all claims.

Understanding sums insured

The ‘sums insured’ is the amount you would receive from your insurer if you lost all of your buildings and contents.

This figure represents the total limit and will include:

• Cost of outbuildings
• Boundary structure
• Labour costs
• Architects’ fees
• Scaffolding fees
• Debris removal
• VAT

What happens if I need to make a claim?

If you have insured your property and then have a claim, a loss adjuster is appointed, who will visit the property and survey it. The loss adjuster will then calculate a rebuild cost. At that point, it is confirmed whether the property is underinsured – and if it is, the final settlement figure will be affected.

If your thatched or listed home is underinsured, this could cause you to receive less than you expect in the event of a claim. Learn how underinsurance could impact you.

Some homeowners may underestimate the importance of being adequately insured. If you had to reinstate your property, there would be additional costs involved such as surveyors, solicitors, and planning applications. It’s important to remember even though your building sums insured may seem like a lot of money, the value represents more than just your house and everything in it.

Calculating your sums insured

To calculate your sums insured, the value of buildings and contents are broken down:

Buildings

When considering the building sum insured, it’s important to remember the cost of rebuilding a thatch or listed property is not the same as its current market value. If you’re in any doubt as to the accuracy of your building sums insured, we recommend you review this.

To ensure you’re accurately calculating your sums insured, we recommend that you seek a formal rebuild valuation from a professional source such as the Royal Institution of Chartered Surveyors (RICS). Find a surveyor through RICS. It is important to note most valuations will not include VAT, so you should discuss this with your surveyor as it will need to be included in the building sum insured.

Contents

Using our Contents Calculator will give you an estimated value of your contents.

Worried you’re underinsured?

If you have any questions or concerns about underinsurance or an insurance policy, please contact us.

Call 01823 250702 if you are an existing customer of ours.
Call 01823 250780 if you are looking for a new quote.