Property Price leap leaves Risk of Underinsurance

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• Published: 18 Nov 2009 in Household and Home Insurance

By Simon Read

Do you want to be a property millionaire?

Some 43,400 properties have climbed over the million price bracket in the last 15 years, according to official Land Registry figures analysed by lender HSBC. The bank said that property prices have climbed a staggering 213 per cent since 1994 - the year the National Lottery was launched -until November 2009.

So, while some 2,300 lucky people have become millionaires by spending a quid or more every week on the lottery, almost twenty times that many have become millionaires simply through buying or owning property.

London is home to the majority of property millionaires

As you'd expect, three-fifths of property millionaires can be found in London while anyone living in Llandrindod Wells in Wales may be better carrying on doing the Lotto as it is the only postcode area in England or Wales not to have a million pound property transaction during the last 15 years.

Meanwhile, even average priced properties have soared over the last decade and a half. HSBC reported that the average house price across England and Wales has climbed from £64,836 in 1995 to £202,813 in 2009, with many climbing even higher at the height of the market in 2007.

Insurance risks posed by your home rising in value

But there's one possible problem with sitting on a property that has massively increased in value since you've been living in it - it could have left you underinsured. How could that be possible? Well, it will depend on which firm you have a policy with. Different firms offer different levels of cover. For instance Esure offers unlimited buildings cover while Churchill limits cover at £500,000. Other companies may have different approaches but none will actually calculate the rebuild value of your own home. Instead they will generally offer what they feel is enough cover.

Understand how home insurance policies work

How can you find out if you have enough cover? First you need to understand that the cover is not the resale value of your home, but the rebuild value. In other words, if your home was totally destroyed or burned down, how much would it cost to replace it?

Factors affecting the cost, apart from, obviously, the size, is the type of bricks used, location (it's more expensive to build in London than elsewhere), or even if there's any historical value to your home, which will be more expensive to replicate.

You can get a rough idea of the rebuild cost of your home through a service offered by the Association of British Insurers and the Royal Institute of Chartered Surveyors. You'll need to register (it's free) at the Building Cost Information Service but you'll quickly know how much cover you'll need to have. Check the figure against that shown in your insurance policy. If it's higher, then you may need to arrange extra cover.

Beware of the impact on your contents insurance

Crucially, you could also find you have less contents insurance than you need. 

While you may have one insurance policy for your home, there are two different elements which many insurance providers sell as a combined policy and that you should be aware of.

With contents insurance, many insurance providers have a set amount they allow based on average figures. The typical family home has contents worth around £40,000 and most general policies should offer around this level of cover: Churchill offers £50,000, for instance. However, check your own policy document to see what level you have.

Check you have adequate cover

To find out whether your cover is adequate, you should do an inventory of your possessions and valuables. Simply go through your home and write down the cost of replacing all the items you have. This is particularly relevant at the moment when it comes to jewellery because the price of gold has rocketed this year. It could mean that rings or other gold jewellery are now worth a lot more than they were a year ago. (See: Don’t undervalue your jewellery in the gold rush.)

If you discover your possessions are worth more than your cover, then it's worth getting extra. The key fact is that if you do lose possessions, you want to be able to afford to replace them. So make sure your insurance is doing its job.