When we refer to ‘home insurance’ we’re typically talking about two main types of insurance policies:
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Table of Content
Buildings Insurance
Similar to mortgage protection insurance, buildings insurance is required by lenders (i.e. the banks) as a condition for issuing a mortgage to a borrower.
However, unlike mortgage protection insurance, buildings insurance isn’t required by law for those with a mortgage. The banks simply won’t grant you the mortgage without it.
![Building insurance Buildings Insurance](https://compareinsurance.ie/wp-content/uploads/2024/01/Building-insurance.jpg)
Why do you need building insurance
The property (i.e. the house you’re buying) is the bank’s collateral in the event that you default on your mortgage repayments. Naturally, the bank will want its collateral to be insured, hence the need for buildings insurance.
The bank will want the main structure of the home and any outbuildings (i.e. garages, sheds, greenhouses, swimming pools, tennis courts etc.) to be insured in respect of damage caused by fire, theft, subsidence, water damage and any damage caused by objects falling onto the property such as tree branches. It’s important to note that buildings insurance does not usually cover damage caused by:
How much building insurance do I need
The property must be insured for a sum that’s equal to the cost of rebuilding the property from scratch if destroyed. This is known as the ‘reinstatement value’ of the property which is not the same as the market value of the property. The property’s market value will typically be higher given that the site which the property is built on will continue to persist even if the property is destroyed.
Having clarity over how much buildings insurance is required is crucially important as so to avoid the risk of underinsurance. Naturally, the reinstatement value of your property will increase over time as a result of inflation and other factors. If your insurance cover isn’t also increasing over time then, should a future claim come to fruition, you’ll find yourself underinsured – and there is a very real cost associated with this. Insurance companies use what are known as ‘average clauses’ to reduce the amount that they have to pay out where a claim is made and the property is underinsured.
Logically, this makes sense. If a policyholder doesn’t fully insure their property, and consequently pays a lower premium, then the insurer can’t be expected to pay out 100% of the incurred loss. Rather, the payout will be limited to the proportion of the reinstatement value that is insured. This is calculated as the sum insured divided by the reinstatement value and multiplied by the loss incurred. So, underinsurance is not a tactical play (i.e. to save premium), but rather a surefire way to incur financial loss upon the happening of an insured event.
The Central Bank of Ireland found that under-insurance in the home insurance market had increased from 6.5% in 2017 up to 16.5% in 2022. This makes sense considering the rapid rise in construction costs and, thus, property reinstatement values during this period, as a result of the pandemic and other factors. According to the Society of Chartered Surveyors Ireland, average housing delivery costs in the Greater Dublin Area (€461,437) for example increased by 24% (€90,126) between the middle of 2020 and the end of 2023. Due to the resulting increase in underinsurance, in 2021, the average reduction in payments to claimants was 19%. This means that the underinsured claimants themselves would have had to make up the shortfall in cash required to fully meet the cost of their claim.
Furthermore, the Central Bank found that insurance providers were inadequately informing consumers of the risks of underinsurance and the consequences of such. It would make you wonder why, in 2022, 92% of home insurance holders were satisfied with the quality of cover provided and 86% were satisfied with the cost of said insurance!
According to the Central Bank, reasons to review your level of buildings insurance include:
How to avoid being underinsured
Some insurers operate an indexation system whereby the sums insured are automatically increased annually in line with various indices which track construction costs. Insurance premiums would also scale in line with the increase in cover as is the case with all indexation options on insurance policies.
However, even if indexation is applied by the insurer, there’s no guarantee that it will fully protect the insured individual against underinsurance.
That’s because the reinstatement value of the individual’s property could be growing at a faster rate than the rate of general construction costs. For that reason, you should ensure that you’re checking the insured sum on a regular basis in order to assess whether it’s adequate to cover the full reinstatement value of the property.
The Society of Chartered Surveyors Ireland have an online calculator which can help you to estimate the reinstatement value of your property. Alternatively, you can explore the use of a property valuation service.
Where a claim is made under a household insurance policy, the sum of money will be issued in the joint names of both the borrower and the lender. Reason being, the lender needs to be sure that the borrower will use the money appropriately (i.e. carrying out the necessary repairs) otherwise the bank will be left with a less valuable property acting as collateral for the money that they’re owed. When making a claim on household insurance the burden of proof lies with the insured individual to show:
a) That an insured event has occurred
b) The value of the loss arising from that event.
When a claim is denied then the burden of proof flips to the insurer. Buildings insurance can be arranged either directly via the lender or independently.
Fortunately, here at Compare Insurance, we’ve made it easier than ever to get independent quotes from all of the major building’s insurance providers. Simply click the button below, enter the details of your home and you’ll be connected with one of insurance partners who are authorised and supervised by the Central Bank of Ireland. Our partners will help you to find the building’s insurance policy that best suits your needs.
Contents Insurance
Contents insurance is an insurance policy which covers your personal belongings i.e. the items that you would take with you if you were to move home.
Contents insurance is also available to those renting a property and is typically referred to as “renters insurance” or “tenants insurance”.
In 2019, Allianz found that 91% of Irish renters do not have renters insurance, thus exposing them to the risk of financial loss. In fact, less than 25% of those surveyed knew that renters insurance even related to contents!
Contents insurance typically applies to the likes of furniture, cash, jewellery, electrical items and clothes. It’s normally offered on a “new-for-old” basis whereby you’re compensated for the cost of repairs or replacement for items damaged or destroyed at today’s market rate.
![Contents Insurance cover cover against loss of or damage to the contents of your home](https://compareinsurance.ie/wp-content/uploads/2023/04/Contents-Insurance-cover.png)
How much content insurance do you need
Similar to buildings insurance, there is a real need to gain clarity over how much contents insurance is required.
If your cover is too low then you may find yourself in a position of underinsurance where your claims are not paid in full.
If your cover is too high then you could very likely be paying an excessive insurance premium for no good reason.
While you can calculate the sum insured yourself (and it’s perhaps advisable to do so) it’s worthwhile noting that many contents insurance providers offer coverage whereby the sum insured on contents is calculated based as a percentage of the sum insured on the building. The sum insured is the maximum amount that’s payable, not the amount that you’re guaranteed to receive.
Limitations to content insurance
There are typically a number of exclusions and limitations which apply to contents insurance as well:
Insurers may also apply a single article limit whereby no single item will be treated as being the greater part of a specified percentage of the total contents insured. Likewise, there may be a valuables limit whereby the total value of certain insured contents is restricted to a specified percentage of the total contents insured.
Fortunately, here at Compare Insurance, we’ve made it easier than ever to get independent quotes from all of the major contents insurance providers. Simply click the button below and you’ll be connected with one of insurance partners who are authorised and supervised by the Central Bank of Ireland. Our partners will help you to find the contents insurance policy that best suits your needs.
Apartment Insurance
With respect to buildings insurance for apartments the situation is slightly different.
All of the individual apartment owners combine to form a management company or ‘ManCo’ and the ManCo insures the entire apartment block for its reinstatement value.
Each individual apartment owner is then assigned their relative share of the insurance cost.
Logically, this arrangement makes sense as there are common parts of the apartment building, which need to be insured, that all apartment owners benefit from – such as hallways, stairs, lifts and the roof.
![Apartment Insurance Apartment Insurance](https://compareinsurance.ie/wp-content/uploads/2024/01/Apartment-Insurance.jpg)
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Self-Build Insurance
If the borrower is engaging in a self-build, whereby the construction work is subcontracted out to various tradespeople, then self-build insurance policies will apply.
Firstly, in order for the funds to be released from the bank, the construction of the property must be supervised by a qualified architect, engineer or surveyor who has their own indemnity insurance which can be called upon should a defect be discovered after the property has been constructed.
For self-builds, the bank will offer a stage payment loan whereby the funds will be released in stages as the property construction progresses.
The borrower must also take out insurance called “own home under construction” or “property in the course of construction” insurance for public liability and damages. This insurance is more commonly referred to as “self-build” insurance.
Finally, for newly built properties, builders are required to register with a scheme for structural defect cover which protects the property against defects.
Banks will typically request that the borrower provide evidence of this cover, which is obtained from the builder, when applying for a mortgage to purchase a newly built property.
![SelfBuildInsurance Self build insurance Ireland](https://compareinsurance.ie/wp-content/uploads/2023/10/SelfBuildInsurance.jpg)
Landlord Insurance
Landlord insurance gives landlords access to their own types of buildings and contents insurance policies which seek to protect the landlord from the risks associated with their investment property.
In addition, landlords can also avail of insurance policies which provide cover in the event of an unexpected loss of rental income.
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