It’s hard to keep up with the insurance market.
This month alone, homeowners have been warned that home insurance costs are too high, while others are warning of massive under-insurance due to construction inflation.
Both can be true at the same time, and it’s one of the areas where consumers are more likely to blindly renew their policy when it comes up without checking that they actually have the right amount insured for their home.
Home insurance is mandatory if you have a mortgage; The lender needs to be sure that their assets are protected in the event of a disaster. But it should be maintained even after your mortgage expires, and with the increase in extreme weather events we’re seeing due to climate change, everything from frozen pipes in the winter to floods and wildfires in the summer need protection against everything.
The central bank is warning lazy consumers that anyone who renews with the same insurance provider year after year could pay a third more than active switches. Unlike the auto insurance market, which has come under scrutiny by government and consumer advocates, which has forced them to ban practices like “price walking” – charging loyal customers more than new ones – the home insurance market relies on your apathy.
Jonathan Hehir of Insuremyhouse.ie says research shows very different premium levels for identical properties.
“We have taken on three typical home insurance claims in three bedroom semi-detached houses in Dublin, Cork and Galway. We were able to get quotes from 15 insurers and the price differences were overwhelming,” he says.
“Using a sample offer for building coverage of €300,000 and €50,000 content coverage, the highest offer for the property in Dublin (€585) was almost double the lowest offer (€285.08) – leaving a homeowner with twice the price could spend as much as needed,” he says.
Outside Dublin he found the differences to be slightly lower but still significant with a 71 per cent difference between the lowest and highest rates in Cork and a 77 per cent difference in Galway.
“The key to getting the best value for money is to make sure you get a large number of offers. Don’t limit yourself to just one or two of the main providers,” he says.
Inflation is a big problem everywhere, but construction inflation is even higher than the cost of living, as anyone who’s tried to get a price from a builder knows. This has the effect of making repairs more expensive if your property is damaged. As a result, you could already be significantly underinsured by just renewing the same policy you had last year.
According to insurer Allianz, cement has increased by 11 percent, plaster by 30 percent and wood by a whopping 64 percent. Labor costs have also increased.
Not keeping up with inflation could mean you don’t have enough coverage if you suffer an adverse event. It is false frugality to attempt to manage premiums through underinsurance. In any case, risk the contents or individual items, with a higher deductible, but the bricks and mortar really should be fully insured.
However, the cost of rebuilding is just a problem of underinsurance. An annoying clause in many contracts means all settlements could be reduced if you don’t have adequate coverage. This is called the “average clause” and comes as a shock if you’re claiming something relatively small like a damaged roof or frozen pipe.
So, says Mr. Hehir, if your total coverage for “buildings” is $150,000, but the cost of rebuilding your home would actually be $200,000, it’s clear you have a 25 percent shortfall. “But this loophole can be applied to all claims, not just the big ones at many insurers. For example, you might be left with only 75 percent of a theft or leak claim.
If the homeowner’s building insurance sum is less than the full cost of reconstruction at the time of the loss, claims settlements may be reduced
William Tilley, Senior Associate at Ivor Fitzpatrick & Co Solicitors, explains the legal principle. “If the homeowner’s buildings insurance amount is less than the full cost of rebuilding at the time of the loss, the claim may be reduced and the homeowner will be liable for the shortfall in the loss. To avoid underinsurance, it makes sense for homeowners to review their building coverage to ensure the estimate provided when purchasing or renewing their policy is accurate and up to date.”
SCSI’s Edward McAuley says the dramatic surge in construction inflation due to Covid, supply chain delays and the situation in Ukraine is at a tipping point.
“Homeowners should consider increasing their reinstatement coverage to deal with construction inflation. You should also check with your insurance provider about indexation, which will automatically increase your buildings and contents coverage when you renew your policy each year. It can help homeowners avoid underinsurance by increasing insurance coverage in line with general inflation.”
The SCSI will update its home rebuild guide next month. Below are ways to save on rewards.
Reduce home insurance costs
Reducing your premium while maintaining proper insurance coverage is a balancing act. Here are some tips:
- Check whether your policy has integrated indexing. This means you are less likely to be underinsured.
- Calculate your conversion costs. This does not equate to the value of your home as you already have the basic structure. Use the conversion guide on SCSI.ie or your insurer’s website.
- Check to see if your insurer offers discounts for bundling your home, car, and other insurance policies, and if there are benefits to adding a spouse to your insurance package. This can save you a significant amount on your insurance policy.
- Most insurers offer discounts for people with security alarms and/or monitored alarm systems. So if you have one of these, make sure your provider knows about it, as a monitored alert can reduce premiums by up to 25 percent. Securing your home also extends to “damage protection” your home – consider installing storm blinds or strengthening your roof if you live in an exposed area, or upgrading your heating, plumbing and electrical systems to reduce the risk reduce fire and water damage.
- Check the value of your possessions regularly. Some items may not be as valuable as they were years ago, or may have been sold or given away. New items may need to be added.
- Increasing your policy deductible may lower your premium, but you will take on a larger share of each claim.
https://www.independent.ie/business/personal-finance/how-to-avoid-the-pitfalls-and-get-the-best-house-insurance-on-the-market-41861283.html How to avoid the pitfalls and get the best home insurance on the market