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Home insurance is there to help protect your property and belongings. However, it is important to make sure the amount of cover is realistic.
If your home or belongings are insured for less than their true replacement or rebuild cost, you may be underinsured. This can affect how much you receive if you need to make a claim.
Citizens Advice explains that buildings insurance should cover the cost of completely rebuilding your home, and that the rebuild cost is not the same as the market value of the property.
Underinsurance happens when the amount of cover on your policy is not enough to cover the real cost of rebuilding, repairing or replacing what is insured.
For example:
Buildings insurance usually covers the structure of your home, including:
The cover amount should usually reflect the rebuild cost, not the sale price.
Your home’s market value is what it may sell for. The rebuild cost is the amount needed to rebuild it if it were seriously damaged or destroyed.
These figures can be very different. Citizens Advice advises homeowners to insure for the amount it would cost to completely rebuild the home.
Contents insurance covers personal belongings in your home. Citizens Advice explains that contents insurance can cover loss, theft or damage to personal and home possessions.
To estimate contents value, go room by room and list items such as:
Many people underestimate how much it would cost to replace everything.
Your policy may have a limit for individual valuable items. For example, if your policy has a single-item limit of £1,500 and you own an item worth more than that, it may need to be listed separately.
Check this for:
Your cover may need updating after:
These changes can increase the rebuild cost or contents value.
Keep receipts, photos, valuations and serial numbers where possible. This can help if you need to make a claim.
Do not only check your home insurance when you first buy it. Review it at renewal or when your circumstances change.
Underinsurance can leave you with less support than expected after a claim. Review your buildings and contents cover regularly so it reflects the real cost of rebuilding and replacing your belongings.
What does underinsurance mean?
It means your insurance cover is lower than the real value or cost of what needs to be insured.
Should buildings insurance be based on market value?
Usually no. It should normally be based on the rebuild cost.
How can I avoid contents underinsurance?
List your belongings room by room and estimate the replacement cost carefully.