There has been an unprecedented increase in house rebuild costs in the past year according to figures from the Society of Chartered Surveyors Ireland (SCSI). This is due to numerous factors including increased price of building materials, supply-chain difficulties, and fuel price increases.
In most cases, insurers are index-linking the sums insured on home insurance policies in line with the Consumer Price Index at each renewal, with some insurers not index-linking at all. However even with the index-linked increases it could be likely that the sums insured are not adequate to contend with the surge in building costs of late. This poses a significant threat to clients if it transpires at the point of claim that their buildings are under-insured as the Condition of Average may apply.
Under-insurance occurs where the insured sums on your property is less than the value it will cost to reinstate or replace it. All buildings should be insured for their full replacement value, including the cost of demolition, debris removal and professional fees. Where a property is under-insured, the value of any claim is reduced by whatever proportion is represented by the level of under-insurance.
For example, Tom & Mary’s home has a full rebuild cost of €300,000 but they have it insured for €240,000 i.e. only 80% insured. (€240,000 / €300,000 = 80%).
Scenario A: There is a burst pipe in the downstairs of their home and the cost to repair is €50,000. Insurers would only pay €40,000 as they are under insured by 20%. (€50,000 @ 80% = €40,000). Tom & Mary would be out of pocket for the balance which is €10,000.
Scenario B: A fire breaks out and the entire house burns down and the cost to repair is €300,000 (ie. the rebuild cost). Insurers would only pay €192,000 as they are under insured by 20%. (€240,000 @ 80% = €192,000). Tom & Mary would be out of pocket for €108,000, which is €300,000 – €192,000.
As a result we are strongly advising all our clients to review their property insurance policies and sums insured to ensure that you have adequate insurance in place. For your convenience, please find a helpful link to the SCSI Rebuild Calculator which is free to use. Please bear in mind the calculator assumes a standard build and basic finish. House Rebuilding Calculator
How to calculate the rebuild costs of a house?
Calculate the internal area of your property by measuring the internal finish of the perimeter or party walls within the property, ignoring skirting boards, at each floor level. For two or three-storey houses, normally the upper floor is the same as the ground floor. However, if it is different, you should calculate each storey separately to retrieve a more accurate area calculation. Once you have all the areas, add them together to get the total sq.m area. Consult the SCSI calculator and choose the appropriate house type and region and insert your total floor area and add the cost of a garage if applicable. The rebuilding rates are for speculatively built homes i.e. estate-type homes and should not be used for other house styles such as one-off homes in the countryside or period properties.
Homeowners should consider getting professional advice to be assured that the correct rebuilding rates are used in these instances. You should add higher-than-average kitchen fittings, finishes, etc if appropriate. You should also add for any other outbuildings e.g. studio, office. A House Rebuilding Calculator and the 2022 Guide to House Rebuilding Costs is available from the SCSI free of charge.
If you would like to discuss your property insurance, please don’t hesitate to get in touch @ email@example.com or 01 890 22 77.
PS. We would strongly recommend that you review your Contents sums insured as well to ensure accurate cover. Please note that bicycles, mobile phones, hearing aids, tablets and laptops must be specified on the policy to be covered. We have an Inventory Checklist available to help you calculate your Contents sums, just let us know if you would like a copy.