Millions of homeowners may not be fully covered by insurance if their house burns down

An estimated nine out of 10 homes have underestimated the amount of cover they need for 'rebuilding' costs.

Soaring costs could leave homeowners seriously out of pocket if their home is seriously damaged such as in a fire.

An estimated nine out of 10 homes have underestimated the amount of cover they need for ‘rebuilding’ costs on their property insurance – largely because the cost of it has shot up 18% in a year.

The increase, which is the fastest rise since 1980, means the average three bedroomed semi-detached home now costs £53,000 more to rebuild than it did in February 2022, according to the Building Cost Information Service (BCIS).

There’s even a danger that homeowners could be left without any cover on their insurance at all if their homes burn down or need to be rebuilt from scratch, MailOnline reports.

Andrew Chalk, a home insurance specialist at NFU Mutual, estimates ‘millions’ of people are at risk of ‘underinsurance’. This is when a homeowner pays for insurance but is not covered for the full value of their home if disaster strikes.

The insurance value of a property isn’t based on its mortgage valuation or a percentage of its market value – it’s based on how much you would need to rebuild the home from scratch.

Mr Chalk said: ‘Anyone in older properties, listed buildings or with unusual construction such as thatched roofs should remember the cost of reinstatement is likely to be more due to the specialist skills and equipment needed.’

The dramatic surge is largely down to an increase in the cost of materials, with insulation up by 62%, uPVC windows up by 49% and plasterboard costing 46% more. 

The price of cement has also increased by 34%, bricks 28% and blocks 26%, while a shortage of skilled workers has added a further 5% to project costs.

Various costs including demolition, debris clearing, architect fees, planning costs and installation of plumbing, electricity, ventilation and gas are all taken into account. 

For example, a family with a three bedroom home which has an insurance policy that covers them for £284,500 – last year’s rebuild cost – would be 18% underinsured today.

If a flood meant they needed £20,000 worth of repairs, their insurer would pay out just 82% of that, which is £16,400.

In one recent case seen by Jeff Salmon of insurance claims management company Salmon Assessors, a young married couple in Stanmore, Middlesex were left tens of thousands of pounds out of pocket after realising they were not covered for the full value of their home when it was too late.

The schoolteachers’ flat burned down due to an incident with candles during celebrations for the Indian festival Diwali. 

They made a £220,000 claim but their home insurance provider claimed they were 30% underinsured.

After extensive negotiations, the firm agreed to the home cover being 10% short, which still meant they had to fork out £22,000 from their own savings.

However, in more extreme cases of underinsurance it is common for the insurance provider to revoke its cover and reimburse the cost of the policy with no payout, Mr Salmon said.

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