A recent report from the Society of Chartered Surveyors Ireland (SCSI) claims that home rebuilding costs have increased by 7.3% on average over the past 18 months, putting upward pressure on home insurance premiums and potentially leaving existing policyholders exposed.
Sometimes it feels like the price of everything is always going up.
Whether it’s car insurance, petrol, electricity or health insurance, there never seems to be much of a reprieve for hard-pressed households.
And unfortunately you can probably add home insurance to that list.
Increasing rebuild costs
When taking out home insurance, you need to make sure that you insure your home for the right amount, which should be based on accurate and up-to-date house rebuild costs.
So if your home costs €250,000 to rebuild, then this is the amount that it should be insured for and nothing less.
However there has been a lot of inflation in the construction sector in Ireland in recent times. In fact, according to the SCSI, the costs of rebuilding the average three-bed semi-detached property have increased by 7.3% on average over the past 18 months alone. Increases ranged from 5% in Dublin to 9% in the North West.
The increase in costs is mainly down to two things: general inflation in the constitution sector - due to things like higher wages and higher costs for raw materials as a result of Brexit - and also increased costs associated with making new-build homes more energy efficient. For example, the Nearly Zero Energy Building (NZEB) standards which builders are now obliged to follow can make many new homes far more expensive to build.
And these higher rebuild cost are also feeding through into higher home insurance premiums.
It’s no surprise then that according to the CSO, home insurance costs have risen by 1.2% over the past month and 3.5% over the past year, well above the general inflation rate of -0.4%.
Speaking about the increased costs, Tomás Kelly, Chair of the Quantity Surveyors Group in the SCSI says:
We fully support the introduction of NZEB standards and recognise the key role they will play in helping to reduce CO2 emissions and reducing energy costs over the long term. However, from a building perspective, they do come with an upfront cost. For example, if you’re rebuilding a house – or 25% or more of it – the ‘envelope’ or surface area of the home has to be bought up to a B2 BER rating. The envelope is the total surface area of the house which leaks heat, so it includes external walls, windows, doors, the ground floor and roof or ceiling. Replacing heat pumps, temperature control systems, heat recovery systems all adds mechanical, electrical and plumbing costs to the rebuild process.
However, as rebuilding costs rise, it’s important your home insurance policy keeps up, otherwise you could be in serious trouble should anything go wrong...
Making sure your home is insured for the correct amount is important as it means you won’t be out of pocket should something catastrophic happen.
For example, if your home is only insured for €300,000 but now costs €400,000 to rebuild (so 75% insured) you’d have to stump up the extra €100,000 if it needs to be completely rebuilt.
However another thing that homeowners often don’t realise is that if your home is underinsured, it’ll also affect smaller payouts.
Using the above as an example, if a fire in a small part of your home caused €100,00 worth of damage, your insurer would only pay out €75,000 in the event of a successful claim as your home was only 75% insured to begin with.
How do I know what my house rebuild costs are?
While most insurers will have their own house rebuild calculators, you can always head over to the SCSI’s site and use theirs which will tell you what the actual costs are based on your house type, square footage and location.
Then, add in things like garages, home offices, fancy kitchens and you arrive at your base insurance figure.
An important thing to remember is that your home should be insured for how much it would cost to rebuild, and not how much it would cost to buy on the open market.
In upmarket, urban areas there can be a huge difference between the two. So just as it’s important you don’t underinsure your house, it’s important you don’t overinsure it either.
Compare, switch, save
Although the rise in construction costs is putting upward pressure on home insurance premiums, competition among insurers for new business is rife which means you could still save money by switching.
So next time your policy is up for renewal:
- make sure you’re insured for the right amount and
- shop around and see if there’s better value out there
Just like with energy and broadband, home insurance providers often offer deep discounts to attract brand new customers.
Many insurers also save their best discounts for people who buy online so remember to take this into account too.