The Importance of Correctly Insuring Your Property
Property insurance is an essential safeguard, providing financial protection against unforeseen damage or loss. However, the importance of correctly insuring your property is just as crucial as having coverage in the first place. Being either over-insured or under-insured can have significant financial consequences. Here’s why getting the sums insured right is crucial.
Over-Insured: Paying More for No Added Benefit
It may seem logical to insure your property for a higher amount to provide extra security, but in reality, this offers no benefit. Insurance claims are based on the cost of repairing or rebuilding the property, not the insured sum. If a claim is made, the insurer will only pay out for the actual cost of the required works, meaning the excess amount insured is unnecessary. However, the downside is that the policyholder pays a higher premium due to the increased insured value, leading to wasted expenditure with no return.
Under-Insured: A Costly Risk
Under-insuring a property is particularly risky and can have serious financial consequences. If a property is insured for less than its actual rebuild cost, any claim made will be subject to a reduction in line with the percentage of under-insurance.
The example below highlights the importance of correctly insuring your property, and the potential consequences of not doing so:
- A property has a rebuild cost of €200,000.
- The owner insures it for €150,000, meaning the property is 25% under-insured.
- In the event of total destruction, the insurance will only pay out the insured sum of €150,000, leaving a shortfall of €50,000 for the owner to cover.
- Furthermore, this percentage of under-insurance applies to all claims. If a burst pipe results in €20,000 worth of repairs, the insurer will only cover 75% of the claim (€15,000), leaving the owner to pay the remaining €5,000.
Ensuring Proper Coverage
To avoid the pitfalls of both over-insurance and under-insurance, we advise property owners to take the following steps:
- Obtain an Accurate Rebuild Cost Assessment: Engage a qualified surveyor or professional valuer to determine the true rebuild cost of the property, ensuring an accurate sum insured.
- Review Your Policy Regularly: Property values and construction costs fluctuate, so it’s essential to review your insurance coverage annually to ensure it reflects current rebuilding costs.
- Consider Professional Advice: Insurance brokers or property professionals can provide guidance on selecting the appropriate cover for your needs.
By correctly insuring your property, you can avoid unnecessary expenses while ensuring adequate financial protection in the event of a claim.
For expert advice on commercial property valuations contact O’Neill & Co. today.
Read more in this guide developed by the Society of Chartered Surveyors Ireland (SCSI), which provides average rebuilding rates https://scsi.ie/consumer/build/calculator