Your Personal Financial Questions – How Much Should I Insure My Home This Year With Costs Rising?
FI am currently renewing my household contents insurance for the coming year. It is a four bedroom two storey house with a market value of approximately €350,000. I am asked by the insurance company about the cost of rebuilding the house. Last year I had €170,000 in “conversion costs”, but I understand that the conversion costs have increased. Is this amount enough? We live in Co Clare.
A It is your responsibility to ensure that your home insurance rating is accurate.
This is called the “insured amount” and is based on the cost of having your home rebuilt by a contractor in the event of a major fire or damage – rather than the market value of your home, according to People Insurance chief executive Paul Walsch.
The Society of Chartered Surveyors Ireland’s online calculator will give you a good indication of the cost of remodeling your property. According to SCSI.ie, the average cost of remodeling a standard 95m² three bedroom semi detached house in Dublin at 2021 prices is €218,000.
The Society estimates that reconstruction costs have increased by over 7 per cent in 2021, from increases of 5 per cent in Dublin to 9 per cent in the North West, Mr Walsh said. If you accidentally underestimate your remodeling costs and end up with a larger insurance claim, your insurer will only pay part of your claim, the People Insurance chief said.
For example, if you estimate your conversion costs at €170,000 and your insurer determines that the sum insured should have been €225,000 in the event of a major loss, they will only pay you 75 percent of your damage and not the full damage conversion costs.
Q I see mortgage rates going up. I have a variable rate, what should I do? I don’t want my mortgage to go up as I’m just about to get by financially as it is.
A According to Dave Curry, director of Nova Mortgages, it would be prudent to consider a move from an adjustable to a fixed rate. This would protect you from potential rate hikes, but could also save you money right away, as most fixed rates are currently lower than floating rates. You can take a fixed rate loan from your current lender or switch your mortgage to a new lender.
Mortgage rates have been falling steadily in recent years, so it’s worth checking out, Mr Curry said. Increasing the value of your home can also help. Mortgage rates are based on the loan to value (LTV) ratio, with lower rates being offered to borrowers with a lower LTV.
The next decision is how long to fix. Most lenders offer fixed rates from one to 10 years, but some are now offering longer-term options, from 15 years to the entire loan term. There are other important considerations, including cashback offers and flexible overpayment options.
Speak to a good mortgage broker for a comprehensive view of your options and a recommendation tailored to your circumstances and goals, Nova Mortgage Chief advised.
Q I find it really difficult to deal with and manage the price increase. Do you think I should get together with some of my co-workers to ask my employer for a raise?
A According to Frank Conway, founder of financial wellness provider MoneyWhizz and qualified financial advisor, you need to approach the matter with some caution. Many employers set their wages, or what they pay their employees, based on prevailing market wages. In other words, wages are not set based on inflation or the CPI.
The reason for this is that market competition for employees is generally a more stable and predictable barometer of what it should cost to attract and retain an employee.
Inflation, on the other hand, is more temporary, Mr Conway said. Although inflation is currently at its highest level in decades, the European Central Bank expects it to be likely to ease towards the end of the year. Then there is no basis for a wage increase.
Another less discussed point is that when inflation reverses, as it has in the past, we have deflation. If this is used as a basis for wage setting, it would lead to falling wages. In this case, of course, it would be a great challenge for everyone involved.
From a financial well-being perspective, treat inflation as a life event that you can prepare for by building some financial resilience. This is best accomplished by having an adequate emergency fund equivalent to three to six months of living expenses.
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