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High Value Homes and Underinsurance

Published: 16/02/2017

High Value Homes and Underinsurance

Studies show that between 70% and 80% of the UK’s high net worth individuals are underinsured.*

It's imperative that our high value, private clients fully understand what is underinsurance and more importantly – it's implications.

When you take out insurance of any type, your premium is calculated based on your circumstances and the amount of cover you’ve told your insurer you need.

Underinsurance occurs when you’ve not taken out enough insurance cover to meet your needs. As a high net worth individual, assessing how much insurance you need can be complicated. There are a variety of factors to take into account, which place you at much higher risk of underinsurance than a standard insurance policyholder.

Underinsurance checklist

  1. Know the true replacement value of everything you own – arrange regular professional valuations of property and contents - at least every three years.
  2. An altered or extended your home? – any remodelling will affect the cost of rebuilding your home. More space usually means more contents – so it usually impacts on this valuation as well.
  3. Cover based on the market value of your home – insurance should be based solely on the rebuild cost and not the market value of the house. The rebuild value could be substantially lower than the market value; it doesn’t account for the desirability of an area or the price of land.
  4. Conversely, it could be higher, if building materials are in high demand or the property market is in a slump. Either way, assessing the rebuild cost is something you’d need a professional surveyor for – we can help you with that.

  5. Factor in every external feature – boundary walls, gates, fences, outbuildings, garden ornaments, swimming pools, tennis courts or car parking are often forgotten when considering what’s needed to reinstate a property to its original state.
  6. Are you listed? – high value properties have an increased likelihood of being listed; so it is important to understand the listed status and how it might impact upon rebuild value. The time and cost of repairs or rebuilds are usually far greater than for an unlisted building. It may be necessary to source hard-to-obtain original building stone and timber, hire labour intensive specialists or deal with complex logistics, so expenses can easily rise.
  7. Account for the costs of professional fees – rebuild or significant repairs to a building will demand the involvement of costly professionals such as architects, engineers and surveyors.
  8. Factor in site clearance – the costs of demolition, debris removal and professional fees will need to be calculated within the cost of reinstatement. This can be particularly costly if you have unusual access to your home. New building regulations that have to be complied with since the building was first erected may need to incorporate features that weren’t present before.
  9. You’ve inherited or been gifted items since your last assessment – antiques, fine art and other collectibles should be valued by an expert to gain an accurate reflection of their market value.
  10. An artist whose work you own has died – the death of an artist since you purchased their work can have a dramatic impact on the piece’s value. If you are a collector of fine art, it’s important to stay abreast of fluctuations in the market value of your collection.
  11. You’ve been through major life changes – marriage, a death in the family or having a new baby can impact on items coming into or going out of the home – these all need to be accounted for.

Here are some other points to consider...

What items have seen large leaps in value in the last five years?

  1. Coins and medals
  2. 1950/60s post-war furniture
  3. Topographical books
  4. 20th-century British art
  5. Modern first editions

Most commonly underinsured categories

  • Clothing
  • Luggage
  • Books
  • Carpets and curtains
  • Kitchen equipment
  • Wine and spirits

Trying to ensure every last thing you own is correctly covered at all times is a tall order, but there are some practical steps you can take to greatly reduce your chances of being underinsured.

  1. Don’t rely on mortgage valuations or purchase prices for the building sum insured on your home. The rebuild value is often completely different so it’s important to get professional help to calculate this.
  2. Your contents sum insured needs to be the total value of everything you own. And remember that, when calculating your contents sum, you’re not calculating what everything is worth now, but the cost of replacing everything new and at current prices.
  3. Some insurers provide a home contents calculator to get a general sense of whether your current contents insurance arrangements are adequate. We can help you make a more accurate assessment via the appraisal services that are available to you, depending on your chosen insurer.
  4. As your broker please update us regarding the purchase of any valuable items – ideally, consult us prior to purchase to ensure you’re never at risk.
  5. Set aside sufficient time to meet with us before your annual renewal, to discuss any large purchases, disposals or changes in your circumstances etc.
  6. Set a schedule of regular valuations. These should be between once a year and every three years, depending on the value of, and market effect upon, key items in your possession.

For further information on any of the information here – speak to a member of the Flint Private Client team – who will be happy to help.

* 70%–75% of UK properties are underinsured: 2015 Datamonitor report. 160 out of 200 Aviva Private Clients are underinsured: 2015 Quastel Associates survey.

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