Underinsurance is a critical issue

The Central Bank of Ireland has instructed insurers to contact all home owners to highlight this critical issue.

As an insurance broker we have been highlighting this matter for a number of years to our customers as the cost of building has been increasing steadily since before the pandemic.

Last year Zurich Insurance carried out a survey of over 1,000 Irish consumers. Its key findings were as follows:

According to the research, 51% of homeowners surveyed are correctly insuring their properties, while over 1/3 of homeowners (36%) are incorrectly insuring their properties by basing their calculation on their homes’ market value as opposed to its rebuild cost. An insurance valuation refers to the ‘building sums insured’, which is the full cost of rebuilding a property including the cost of site clearance and architects’ fees. This should not be confused with the market value.

A further 36% of people who took out a home insurance policy did not take any action to calculate their buildings sums insured, i.e., the rebuild cost of their home. However, one in four people used the rebuild cost calculator operated by the Society of Chartered Surveyors Ireland (SCSI) or another reputable operator, while 15% of homeowners organised a bespoke rebuild valuation through a building’s surveyor. Meanwhile, over a quarter (26%) of homeowners have reviewed the cost involved in rebuilding their home within the last year, 20% reviewed two years ago while a similar figure (19%) have left it three years or more. Almost 1/5 of homeowners (18%) have never reviewed the cost to rebuild their home or can’t remember doing so. High and rising inflationary costs across the construction sector mean homeowners should be reviewing their rebuild cost annually when renewing their policy to avoid the possibility of homes being underinsured.

I would recommend that you review your reinstatement sum insured sooner rather than later and continue to review during the year. In order to get a defin- rationale behind the funding of your PRSA to ensure any sudden and drastic cash extractions from your company are not seen as ‘excessive remuneration’ by Revenue and taxed as salary or a distribution. In other words, if you maximise your PRSA today and draw it down next week, questions may be asked. itive individual reinstatement value on your house you should contact an independent qualified surveyor.

If I was a betting man, I doubt this opportunity will remain open for very long, especially given that financial advisors have been shouting from the rooftops about their questionable plans to implement it across the board. The Tax Institute will undoubtedly be looking to close this window sooner rather than later. Until then, a rare opportunity has presented itself for PRSA holders, and a huge incentive has emerged for those who may benefit from setting up a PRSA. Make sure you find the right tax and investment adviser to explore your options.

If you have any questions, please reach out mike@theislandinvestor.com, I'm always happy to help.

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The most recent rebuilding cost report and a rebuilding calculator can be found at www.scsi.ie.