Millions of homeowners at risk of underinsurance

Christina Hoghton
Written By:
Christina Hoghton

Don’t make this home insurance mistake!

Millions of homeowners could be at risk of underinsurance, according to a poll by NFU Mutual.

The home insurer found that just 4.8% of homeowners intend to increase the amount of cover they have for rebuilding their house in their home insurance. This is despite the fact that rebuild costs have risen due to inflationary pressures.

The poll found that rather than increase cover, a significantly greater number of homeowners – 7.9% – intended to reduce their rebuild cost cover, while the vast majority – 87% – would keep cover the same.

Consider increased costs

The insurer urged homeowners not to confuse house value with rebuild cost. It said this is an ‘area of confusion for many’, as falling house prices reduce the value of people’s homes but inflationary rises in the cost of materials and labour greatly increase the cost to rebuild a property which has been destroyed.

Rebuild costs have outstripped inflation, rising 19% from 2022 to 2023, according to the BCIS rebuilding cost index.

Andrew Chalk, home insurance specialist at NFU Mutual, said: “Although house prices are falling, inflation is sending rebuild costs ever higher, so now is not the time to be reducing rebuild cover.

“With the vast majority of respondents saying they intend to keep cover the same, this poll suggests that most people are not falling into the trap of confusing property value with rebuild cost.

“However, the soaring cost of construction could mean that these people could also find themselves underinsured, particularly if they haven’t changed their rebuild cost cover for a number of years.

“If anything, homeowners should check whether this should be increased to ensure they are fully protected should the worst happen. As only 4.8% indicated they intended to do this, there could be a worrying number of homeowners exposing themselves to the risk of underinsurance and not being able to reinstate their home should it be destroyed.

“We urge everyone not to confuse house prices with rebuild costs and to check with your insurer, a chartered surveyor, or on the BCIS Public Rebuild Calculator to make sure you are not underinsured. Those in older properties, listed buildings or with unusual construction like thatched roofs should remember that the cost of reinstatement is likely to be more due to the specialist skills and equipment needed to rebuild the property.”

Top tips to avoid underinsurance

NFU Mutual has published its tips on things to consider when calculating your rebuild cost to ensure you don’t risk underinsurance.

Here’s what it said:

  1. The insurance value isn’t based on a mortgage valuation or a percentage of market value – neither of these are indications of what it will cost to reinstate the property and are therefore likely to be an inaccurate estimate for rebuilding costs.
  2. Listed buildings status or a conservation area, which may require additional permissions and specialist craftsmen and materials, could result in a higher sum insured being required.
  3. The property’s construction materials – for example, stone or non-standard materials such as ‘green or high tech’ or thatched roofing, can be unique and difficult to obtain. Check your insurer has the expertise and network to adequately obtain these materials.
  4. Extensive outbuildings, garages, store sheds, brick walls, courtyards, driveways and even tennis courts need to be included in the valuation.
  5. The age of the property.
  6. The fixtures and fittings within the property and any recent extensions, alterations or refurbishments.
  7. The location and access to the building and site.
  8. If you are in any doubt as to the accurate rebuild value of your property, you should consult a surveyor.