Don’t accept insurance by default
The good news is that 93 per cent of people with house insurance understand that it has changed.
But 64 per cent of people with it have carried on as if it hasn’t.
The change, which happened just over a year ago, was the sweeping away of total replacement insurance.
In its place appeared insured’’ cover.
Total replacement does what it says on the tin, with the insurer obligated to pay the cost of totally replacing a policyholder’s home in the case of it being destroyed.
Sum insured insurance differs in one way: The policyholder sets a maximum amount that the insurer would have to pay to right the damage. That maximum is the sum insured.
That may not seem like a big change but at a stroke, the ‘‘peace of mind’’ house insurance brought – that no matter what happened, the homeowner could afford to rebuild – disappeared.
Suddenly, it was up to us, the homeowners, to tell the insurers what it would cost to rebuild.
The problem is that few of us are expert in such matters and that seems to have frozen many of us into doing nothing.
Instead of taking steps to get an estimate of our home’s rebuild costs, most of us have just accepted the ‘‘default’’ sum insured suggested by our insurers. That’s a huge concern. The way that default is worked out does vary a bit between insurers but the thing all homeowners must understand is that they are not finely calibrated
‘‘sum based on details insurers hold about people’s homes.
Insurers actually seem to know little about homes they insure.
They know where they are and how old they are.
But they often don’t know how many floors they have or the slope of the land under them or the quality of the finishings or the materials they are built out of.
So, in short, the default sums insured quoted to policyholders are likely in the majority of cases going to be inaccurate.
But about 80 per cent of people with house insurance are relying on them. Construction Cost Consultants (CCC), which specialises in providing homeowners with rebuild estimates, says in some parts of the market, the figure is higher.
Eighty-five per cent of bank insurance customers have just accepted the default estimates, the company says.
If you are one of the sum insured defaulters, what should you do?
Don’t be intimidated. That you have insurance means you will be able to build a replacement home, even if it has to be smaller, or there is a shortfall. But you can get a more accurate estimate.
Firstly, you can set aside a couple of hours and plug the details of your house into one or more of the insurance industry’s free online calculators. Have a builder’s tape measure handy.
If that frightens you, get an ‘‘able’’ family member or friend to help you. The calculators of different insurers can produce different results, which is a little unsettling.
If you are unwilling to accept the calculator estimates then pay an expert. Some opt for a simpler method. Instead of paying an expert, they use the calculator result but then then add a margin for error by lifting the sum insured they ask for.
Each year thereafter, your insurer will lift the sum insured by a rate equal to the rate of building inflation.