The Society of Chartered Surveyors issues annual data on rebuilding costs, writes Laura Slattery
Homeowners' winter hibernation tends to begin in earnest around Christmas time, but before the curtains are drawn, the doors are locked and the central heating system is allowed to do its job, they could save themselves some New Year misery by checking to see if their home is adequately insured.
Home insurance is made up of two parts - buildings insurance and contents insurance - and mortgage lenders insist that borrowers at least have buildings insurance so that they can afford to rebuild the house if it is destroyed.
But thousands of homeowners could be insuring their properties for the wrong amount, either running the risk of having to pay for the cost of damage themselves because they are underinsured or letting insurance companies continually swipe too much from their bank accounts because they have signed up for more cover than they actually need.
"Underinsuring can, sadly, in the unfortunate event of a claim, lead to a large gap between what is paid out by the insurance company and the actual costs of rebuilding the home. Insuring it for too much, on the other hand, leads to unnecessarily high premiums," says Ken Cribben, chairman of the Society of Chartered Surveyors (SCS) quantity surveying division.
How much home insurance people need is based not on the home's market value, but the cost of completely rebuilding it in the event it is obliterated by fire, flood or another hazard.
Every year the SCS publishes an updated guide on how much it costs to rebuild standard houses per square foot.
To work out how much home insurance cover they should have, homeowners can multiply the price per square foot by the floor area of their home. For example, a three-bedroom semi-detached house in Dublin might have an area of around 1,100sq ft. According to the table, it will cost €182 per square foot to rebuild (or €1,960 per square metre).
So, assuming there is nothing unusual about the property, it should be insured for just over €200,000 (€182 x 1,100 = €200,200). Contents insurance, which insurers frequently sell as a percentage of the buildings sum insured, is then added on.
But most homeowners don't know how much insurance they need, and may have very vague memories of agreeing to let their mortgage lender sort it out for them at the time they drew down their loan.
Other house buyers who sorted out their cover for themselves may have inadvertently selected their level of cover based not on the reinstatement value but the market value of their homes.
"If you own a three-bedroom semi in Dublin, it will cost far less to rebuild than its market value, which includes the site value," says Joe Langan of insurance brokers Hickey Clarke and Langan.
"If they are insuring it for the resale value, they're getting no benefit, because the insurer will only pay out the cost of rebuilding it anyway and they are giving away quite a lot of money."
Although lenders will insist that customers who are buying houses must be insured, borrowers are not obliged to accept the lender's policy and can search for the cheapest available policy by contacting insurers directly or using the services of a broker.
"Some people shop around for home insurance looking to save €50, but they could save €50 by doing nothing, just by having the right sum insured," says Langan.
A semi-detached house in Dublin could have a market value of €500,000 but cost only €200,000 to rebuild. Hibernian Insurance's online quote facility offers a premium of €403 for such a property in the Dublin 15 area, based on €200,000 buildings insurance and 20 per cent contents cover. But €500,000 worth of cover will cost more than twice as much, at €940 a year.
Underinsuring can also be a problem, however.
Over the past decade, rebuilding costs have risen steeply because of higher labour costs and the inflating price of building materials.
Things have calmed down of late, however, and 2005 was the second consecutive year that the SCS recorded only marginal increases in rebuilding costs.
The highest increase occurred in the Dublin area, where the cost of rebuilding three-bedroom semi-detached houses rose by 4.5 per cent, while the lowest increase was for detached homes in Limerick, where costs rose by 3.7 per cent.
Rebuilding costs in the Cork, Galway, Limerick and Waterford areas remain below those in Dublin. "Costs are still rising and if homeowners don't make the necessary adjustments to their building insurance policies, then they will not have adequate cover," says Cribben.
Underinsuring can leave homeowners out of pocket even in the event of a partial claim under what is known as the "average clause".
For example, a house that costs €200,000 to rebuild might only be insured for €120,000 because the policy hasn't kept pace with the rising price tag for reinstatement. It is therefore only 60 per cent insured. If a fire breaks out causing €50,000 worth of damage, some insurers will only pay out 60 per cent of the claim, or €30,000.
Cribben recommends that householders ensure their policies are index-linked to avoid underinsuring.
But index-linking does not solve the problem by itself, according to Langan.
"If the house is correctly insured today, and no changes are made to the property, the chances are it will be correctly insured this time next year. But if the sum assured was wrong in the first place, or if an extension is built or improvements are made, then the property will be underinsured," he says.
The SCS estimates that an attached single garage costs around €14,400 to replace, while a double garage costs almost €26,000 to rebuild.
The SCS figures also do not take into account the cost of replacing finishings such as hardwood timber floors, better-than-average kitchen fittings and built-in wardrobes, so anyone who embarks on a bout of SSIA-inspired home improvement should take a look at their cover afterwards.
The good news for homeowners, Langan says, is that thanks to the relative lack of major weather events like storms or widespread flooding, home insurance premiums have come down of late.
