Parents' £250,000 house insured for £1,000,000

ellrhow

I was surprised by this when I looked at their insurance. Why would a £250,000 house be insured for a million? They don't seem to know either; is this a case of miss-selling? Is there anything they should do other than getting a quote and new home insurance as soon as possible?

rs65

Assuming that £250k is the market value, it has no bearing on insurance. You insure for rebuilding cost.

Sounds like they have a blanket cover of £1m which helps to avoid the risks of underinsurance. Have a read of a recent thread with AXA in the title to see what can happen.

Doesn't sound like mis-selling from anything you have said and no reason to change either.

My sum insured is 'unlimited' and it wasn't mis-sold.

jimmy_81

Thanks to other replies, I've realised I know less about this that I thought I did - so please ignore earlier comments!

Off to reconfirm my own home insurance details now...

Aretnap

My buildings insurance covers unlimited rebuild costs (actual rebuild cost c£150k a few years ago when survey done). It was one of the cheaper policies on offer. You will probably not get a big reduction for a smaller rebuild value. It's likely a standard amount which ensures you are fully covered.

jem16

jimmy_81 wrote: »

If the £1,000,000 is indeed buildings insurance then either your folks made a mistake on the application or the insurance company got it wrong.

I wouldn't think it's a mistake on either part. Many policies have £1m as their standard rebuilding costs.

ellrhow

OK thanks all. According to the Association of British Insurers website's calculator, the rebuild cost is under 500,000. It does seem a bit odd to me that insurers are able to give people much more cover than they need; presumably that makes the premium higher.

Faith177

ellrhow wrote: »

OK thanks all. According to the Association of British Insurers website's calculator, the rebuild cost is under 500,000. It does seem a bit odd to me that insurers are able to give people much more cover than they need; presumably that makes the premium higher.

It may seem like they are given more than needed but if a house needs to be demolished you have site clearance fees, architect fees plus other labour costs if this was all taken from the re-build figure the policyholder would lose out.

For example of a house to just re-build ie materials is 120k but all the fees mentioned above total 60k the amount left over for the materials would be reduced down to 60k

*Scarlett

It's not that the insurer is charging you more for £1m buildings cover if it is far over your needs.

For this type of "blanket" cover the premium is calculated on the property and personal details of the insured. So a person with no recent claims living in a 1 bed bungalow in a low risk post code area will pay less than someone who lives in a 6 or 7 bed house but both will have the £1m buildings cover.

You will not neccessarily pay more for £1m buildings cover as opposed to £500k. These amounts are normally just standard sums that individual insurers offer (and there may be other benefits eg alternative accommodation, site clearance, surveyors, architects fees etc.)

You can of course just insure for the actual rebuild cost if it is significantly cheaper - but make sure that you don't under insure.

ellrhow

Well Scarlett, all other things being equal, we will pay more for 1 million vs 500k insurance (I think it's safe to say). I think this should be looked into.

kingstreet

This is not the case.

You can buy two different types of cover. One requires you to enter no sum insured, nor rebuild cost.

This "blanket" or "bedroom rated" cover gives a set maximum sum insured, even "unlimited" cover, but bases the premiums on the number of bedrooms, location etc, rather than the sum insured.

Everyone gets the same maximum amount of cover, but they pay different premiums.

Only a plan based on an actual sum insured entered by the applicant has a premium based on the sum insured. This is the traditional method of calculation.

You need to be able to differentiate between the two.

https://www.moneyadviceservice.org.uk/en/articles/buildings-insurance-how-much-cover-do-you-need

ellrhow

OK thanks KingStreet, I do not now how insurance is calculated. Are we supposed to be allowed to see how our premiums are calculated?

Also, just because they have the same amount of cover for everyone, that does not mean to me that it is not a factor in the premium.