Millions of homeowners who diligently pay for property insurance risk being left deep out of pocket when disaster strikes, Money Mail can reveal.
In some cases, homeowners may lose coverage altogether if their home burns down or needs to be rebuilt from scratch.
This is because an estimated nine out of ten homes have underestimated the coverage required for ‘refurbishment’ costs.
This is largely because the cost of rebuilding a home has risen 18 percent over the past 12 months – the fastest increase since 1980.
The average three-bedroom semi-detached house now costs £53,000 more to rebuild than it did in February 2022 – for a total cost of £347,800, according to the Building Cost Information Service (BCIS), which provides cost and pricing data to the Government and regulators.
Are you covered? The cost of rebuilding a home has risen 18% in the last 12 months – the fastest pace since 1980
The dramatic increase is largely due to an increase in material costs, with insulation costing 62 percent more, PVC windows (a very popular type) costing 49 percent more, and drywall costing 46 percent more.
The price of cement has also increased by 34 percent, bricks by 28 percent and blocks by 26 percent, while a shortage of skilled labor has increased project costs by a further 5 percent.
Andrew Chalk, a home insurance specialist at asset manager NFU Mutual, estimates that “millions” of people are at risk of underinsurance, i.e. when a homeowner pays for insurance but is not covered for the full value of their home if there is a disaster occurs.
This is because the insurance value of a property is not based on the mortgage valuation or a percentage of the market value.
Instead, it’s about how much you would need to build the house from scratch, which depends on the size, age, location, and type of property you have.
Various costs are taken into account, including demolition, rubble clearance, architectural costs, planning costs and installation of plumbing, electricity, ventilation and gas.
So a family with a three-bedroom house and an insurance policy covering them for £284,500 – last year’s refurbishment costs – would be 18 per cent underinsured today.
For example, if a flood meant they needed £20,000 in repairs, their insurer would only pay out 82 per cent of that – £16,400.
The risk is especially high for those who have not changed their rebuild cost coverage in years.
Insurance trap: Some homeowners can find themselves without coverage if their home burns down or needs to be rebuilt from scratch
Mr Chalk says: ‘Anyone in older properties, listed buildings or with unusual construction such as thatched roofs should remember that the cost of restoration is likely to be higher due to the specialist skills and equipment required.’
Many of the major insurers now offer blanket cover of a fixed amount, such as £500,000, £1million or sometimes unlimited. In this case, homeowners are likely to be fully insured and not have to worry about rising costs.
However, there are still millions of people who don’t benefit from this blanket coverage, the experts say.
According to price comparison site Comparethemarket, it costs £12 more each month to get home contents insurance that covers you for rebuilding costs between £450,000 and £500,000, compared to coverage of £350,000 to £400,000.
Will Molland, of the property valuers Rebuild Cost Assessment, says buildings are on average only 66 per cent insured of what they should be and less than one in 10 UK households are insured for the right amount.
He says: ‘Private homes and many buy-to-let investment properties have been hit by higher rebuilding costs, particularly for homes insured for around £500,000.
Our data shows that these buildings are usually only half insured.’
Price increases: The average three-bedroom semi-detached house now costs £53,000 more to rebuild than it did in February 2022 – for a total cost of £347,800
Insurance company Salmon Assessors has seen an increase in the number of severely underinsured families.
In a recent case seen by Jeff Salmon, founder of Salmon Assessors, a young married couple in Stanmore, Middlesex, have been left tens of thousands of pounds out of pocket after realizing they were not covered for the full value of their home when it was too expensive. leave.
The teachers’ flat burned down due to an incident with candles during the celebration of the Indian festival Diwali.
They made a £220,000 claim only to find they were 30 per cent underinsured, according to their home insurance company.
After extensive negotiations, the company agreed that the home cover would be shortened by just 10 per cent, meaning they would have to pay £22,000 from their own savings
However, in more extreme cases of underinsurance, it is common practice for the insurance company to withdraw cover and refund the cost of the policy without a payout, says Mr Salmon.
Adam Holland, of insurance giant Axa, says high inflation means there’s an increased risk of people misestimating the value of their property.
It’s important not to assume you have the right level of coverage, as it’s up to the homeowner to make sure they have adequate insurance.
To get an idea of how much your home could cost to rebuild, you can use the BCIS online rebuild cost calculator which gives you four free calculations per year.
To use it correctly, you need to calculate the floor space of your house before you start. You can find the calculator here: calculator.bcis.co.uk.
You can also hire an appraiser for an appraisal. If you recently purchased your home, the remodeling costs will be listed on your mortgage appraisal or deeds.
One of the biggest mistakes made when estimating rebuild costs is when people simply use their purchase price or give their perception of the current value of their home, rather than how much it would cost to build it from the ground up Holland says.
Improvements, such as a new kitchen, extension or underfloor heating, also drive up renovation costs. If you want to be properly insured in the event of an accident, it is important to pass on any changes to your insurer.
j.beard@dailymail.co.uk
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