Archived Entries - Insurance
- Home
- Blog
- Archived Entries
- Insurance
The Dangers of Underinsuring Your Property
Home improvements are a great way to add value to your property. It could be adding an extension to the back of your property will give you that extra space you have wanted for so long, a bedroom on top of the garage to make way for a new arrival or simply giving your kitchen a facelift.
Whilst these types of improvements will help increase the value of your home they will also increase the rebuild cost, which is where your home insurance comes in.
Research by Chubb Insurance found that buildings insurance for many homes can be short between £75,000 and several millions of pounds.
Pete Harrison from price comparison site MoneySupermarket.com said "While nobody wants to pay more than they have to for home insurance, failing to properly evaluate your home could cost you dear in the event of you having to make a claim."
Making sure you are fully covered
The Association of British Insurers and many insurance companies have an online calculator that will help you work out the rebuild value of your home.
The rebuild value is the amount it will cost to fully rebuild your home in the event that it is totally destroyed. It is extremely important that you do not get this confused with the actual value of your home.
It is important to keep up-to-date with the rebuild costs as these can rise over time. Some insurers will offer policies that are index linked so that the sum insured moves in line with the rebuild costs.
If you own a specialist type property such as a listed building or a cottage with a thatched roof then it may be worthwhile employing an independent surveyor to work out the rebuild costs. This is because specialist materials or unique building methods may be needed which will undoubtedly cost a lot more.
Reducing your insurance costs
If you have just made some costly improvements to your home the last thing you want to do is fork out even more for your annual home insurance premiums. Here are some ways you can reduce the cost:
- Install a standard NACOSS alarm system to protect your home. Some insurers will offer a 7.5% discount off your insurance premium.
- Find out if there is a local neighbourhood watch scheme in your area. This can save you another 5% off your premiums.
- Raise the excess on your premium. This can reduce your overall price but remember this is the amount you will have to pay towards any claim you make.
- If you wish to have both buildings and contents insurance, combine them with the same insurer – usually this will gain you an additional discount.
- Pay your premiums annually. Whilst paying monthly may be easier, insurers will usually levy an additional charge for this service.
- Finally shop around. Do not just accept your renewal price or the quote from your mortgage lender. Once you know the level of cover you require you will be able to compare like for like using a comparison service.
After getting planning permission, consider your home insurance
Improving your home may well be a better idea than moving at the moment, especially given the economic climate. With property prices tumbling across Britain – and predicted to continue falling for some years to come – it’s unsurprising that more and more households are finding that investing money in a renovation or extension is the best way to increase their living space.
If the project is fairly large, such as a loft conversion or building a conservatory, you'll obviously need to look into planning permission and local building regulations, as failure to do so could result in having to pull down your extension or even facing a fine. However, there are other things to consider when you’re planning a home improvement. Before, during and after a project, it's important to review your home insurance, for a number of important reasons.
For a start, you'll need to look into whether your policy would cover you in the event of a mishap during the building works, whether you&'re carrying out the job yourself or bringing in a professional tradesman. In some cases, accidental damage cover may be what you need, but it's always a good idea to speak to your provider and discuss your options. Honesty is always the best policy, even if it brings up your premiums slightly.
You should also keep in mind that an improved home is often worth more, not just in terms of its market value but the value of the contents contained within. For example, if you've decided to build a conservatory, it's likely you&'ll have spent a quid or two on furniture, fixtures and fittings. This means that you may need to increase the value of your contents cover to include these new items and reflect the fact that replacing your possessions would now be a more expensive affair than before.
Failing to get the right level of cover could lead to disaster, especially if there's a major problem in your home such as a flood or fire. It's important to remember that in the event of such a disaster, you will only ever get back goods to the value of your home insurance, no matter how much stuff you actually lost. Increasing the value of your home contents cover will almost always make your premiums more expensive, but it&'s an investment that could turn out to be essential should the worst happen one day.
When it comes to Building Works - Don't forget the Insurance Company
Having building works completed at your home can be considered as an increased risk that the home insurers need information about. Insures these days are forever finding ways to exploit technical errors that the house owner has made to give them credible excuses not to pay out. Rather than taking the risk, you should write to your home and contents insurers advising them of the intended building works and the expected contract period and requesting confirmation that you are still covered.
Most insurers will see this as ordinary and not request additional cover during the works. Others may require an additional premium. Whatever the result do not be caught out by not supplying them with the information.
Ensure You Insure
In these times of housing market stagnation the trend is now to improve rather than move to achieve that dream home, thus making the most of what we have and of course adding value to our properties. One of our first tasks is probably going to be rushing off to the nearest kitchen showroom or arranging a meeting with a builder or architect. We will be consumed by the thrill of our project and the prospect of a beautiful home and will no doubt be excited about its future value (see also What Could my property be Worth?). But how many of us at any point in proceedings will have actually considered insurance? Whether it's cover for major building works or the value of additional contents in the new extension, insurance is probably one of the first things we should be thinking about.
Did you know that the average British household has upward of £45,000 worth of contents, with living rooms and master bedrooms containing the most value? And don't forget that outside space too. Many of us will have items of furniture and ornaments in our gardens and our sheds could contain nearly £1000 worth of property - anything from tools, mowers and even bikes. Apparently a client of one insurance company had around £30,000 worth of shed contents!
It's therefore essential when making decisions on your policy that you don't just compare annual premiums, but also the level of cover provided and the sum insured. Not informing your provider of any structural or high-risk electrical work (in kitchens for example) could result in an invalidated policy. And research indicates that less than half of us have accidental damage cover included on our policies, something to bear in mind particularly if you intend to do the work yourself.
For more information and price comparisons on home insurance just click the link to moneysupermarket.com in our Who Can Help directory.
DIY may damage your health and knock down your property value
According to a recent study undertaken by the insurance firm LV=, around 27pc of homeowners admit they have undertaken electrical jobs without professional help, while 22pc have attempted plumbing work, and 9pc have tried their hand at structural improvements, such as removing walls. A further 6pc have even tried to carry out major building work themselves, such as a loft conversion, while 3pc have tackled potentially dangerous gas repairs.
Whilst many homeowners have carried out the improvement works in the hope of increasing the value of their property, if the work is done badly, it could actually reduce a home's sale price by as much as 5pc. Not only can bungling a job be dangerous and costly to put right, it could invalidate your home insurance cover and make it difficult when it comes to selling. Yes, we all want to save money but remember that carrying out home improvement works that you are not confident with may well be a risk too far. If in doubt, contact a professional.
Home Insurance
There's a wide range of different approaches you can take to look after your property and your family, but taking out home insurance is a good starting point. Keeping your possessions covered isn't necessarily expensive to do, and by taking a few simple steps you can bring your premiums right down.
For example, it might be worth joining your local neighbourhood watch scheme. Not only can you save on your insurance premiums (Many companies offer up to a 5% discount simply for being a member), but doing so means you're part of a community that exists purely to keep each other safe from crime - after all, having house insurance is all well and good, but not having to claim on it in the first place is far more preferable.
Another way to keep your premiums low is to improve the security in and around your home. This can initially be expensive, but when you consider that on average a theft leaves the British homeowner £2,000 worse off and that fitting certain equipment will also lower your home insurance premiums, in the long run it is a worthwhile outlay.
How much security you want to fit is entirely your decision; you may want to simply fit extra locks, or go the whole hog and install a full alarm system. Of course, the more you do the safer you will be, and fitting things like a NACOSS certified alarm or uPVC door will mean your premiums decrease.
Just remember, preventing crime is better than simply covering the damages - homes that have previously been burgled are statistically more likely to be attacked again as thieves know that not only have they been able to break into the property before, but that the items will likely have been replaced. They also have an idea of when you're out, and all this knowledge means that the burglars are better equipped to steal from you again. A good quality alarm that is visible from the exterior of your home is a good line of defence as criminals are less likely to consider a house with visible deterrents, as while home insurance is a good last resort, claiming on it is a stressful process that will just add extra stress to an already difficult situation.
