Before deciding on a home insurance policy, it is important to have an accurate valuation, both of the property itself and of its contents. When it comes to a property valuation for insurance purposes, many people still mistakenly base their valuation on market value or their mortgage valuation, leading to property underinsurance. In the event of a claim, an inaccurate valuation can mean the property is underinsured, leaving them liable for the shortfall in insurance payout in order to reinstate the property.
How can I prevent property underinsurance?
It is strongly advised that you have your property assessed by a chartered surveyor with a reinstatement cost assessment. The surveyor will thoroughly inspect the property, taking into account the structure and current condition, any problems or potential problems, as well as more technical issues that impact the property’s value.
Professional insight enables the surveyor to take deeper aspects of market conditions and other factors into account, from which the surveyor will produce a report establishing the true value of the property, and – crucially – pinpoint the property’s reinstatement cost.
What are reinstatement costs?
A reinstatement cost assessment is conducted to establish the amount that it would cost for the property to be demolished and reconstructed from scratch to the condition it was when new. Along with all aspects of the property’s condition, the materials of which it is constructed, its fixtures and fittings and so on, the reinstatement cost assessment report will also establish labour costs and other fees that may be incurred in a rebuild. This calculation takes into account inflation and other economic fluctuations.
Where a reinstatement cost assessment is not conducted, the property owner can find themselves victim of property underinsurance, but it is just as likely that they will find themselves overinsured. Both situations are problematic. Whilst property underinsurance leaves the owner liable for the difference in the event of a claim, overinsurance means they will be paying more for their insurance than necessary.
What happens when a property is underinsured?
In the event of a claim, the amount will be reduced, giving the property owner less to work with in order to reinstate the property. In the case of underinsured property, claims will be calculated subject to an average, proportionally reduced by the amount that the property is underinsured.
Underinsurance essentially means that the ‘sum insured’ is less than the ‘current value’ of the property. The ‘sum insured’ represents the maximum amount that can be paid out, and this maximum figure will only be paid if the property is totally destroyed.
When should I reassess my property value?
As market fluctuations can impact the reinstatement value of your property, it is recommended that you commission a new assessment every three to five years, to avoid property underinsurance occurring.
Once you have a property reinstatement value from a surveyor, you should update your insurance policy straightaway. Do not wait until your policy comes up for renewal.
To find out more about protecting your property from underinsurance with a reinstatement cost assessment, visit our Buildings Reinstatement Cost Assessment page. Alternatively, get in touch with the team at Robinson Elliott and we will be happy to discuss your options with you.