HOMEOWNERS are exposing themselves to huge risks in event they have to make a claim on their insurance.
Research conducted by Peopl.ie insurance found gaps of up to €35,000 in insurance cover for a typical household.
Homeowners are undervaluing the sums insured on their cover by an average of around 18pc, said Peopl.ie, which offers its products through credit unions.
The provider of home and life insurance compared sums insured on the properties of their clients with average rebuild costs calculated by the Society of Chartered Surveyors Ireland (SCSI) on similar properties.
It found that people are unwittingly “low-balling” what their home cover needs to be.
Chief executive of Peopl.ie Paul Walsh warned that the gap in cover will impact hundreds, if not thousands, of homeowners.
He has also highlighted a widely-held assumption among homeowners that could end up costing them thousands.
“When we looked at our own database and compared the ‘sum insured’ on a two-bed home in Dublin with the cost of rebuilding that same property, we saw that policy holders were massively underinsuring their homes – by as much €35,000.”
The insurer ran similar comparisons for three and four-bed properties and found large cover gaps on the three-bed homes and lesser gaps on the four-bed homes.
Mr Walsh said: “This is an easy mistake to make. We can see how people might arrive at a lower sum insured than is necessary.”
He said homeowners might not have reviewed their property in a number of years, or they just used the SCSI average when they purchased their property and have not updated their policy to reflect the changes in building and construction costs in the intervening years.
“As it is the rebuild cost that determines the amount your house is insured for, it is vital that you keep your policy up to date with current rebuild costs.”
Mr Walsh said there is a general and pervasive assumption that if the sum insured on the policy is, say, €300,000, then if the costs incurred as the result of damage to the property amounted to that much the policyholder would receive that from your insurer.
“However, this is not the case. Claims are awarded on a pro-rata basis, so if you have knowingly or unknowingly undervalued your house insurers will only pay out the amount for which you valued your property.”
This means that if a house is insured for €300,000, but its actual rebuild cost is €400,000, then it is undervalued by 25pc.
The insurer will only pay out a maximum of 75pc of the €300,000.
Another common error made by homeowners highlighted by Peopl.ie is not reflecting the value of any extensions or refurbishments in the sum insured on their property.
He said that if people have significant work done on your home, like an extension or attic conversion, then this should be factored in when calculating your home insurance.
“There is very little different in the cost of premiums, but if something happens it will save you a lot of money.”