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

Aretnap

ellrhow wrote: »

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

No you won't, because there's no chance that an insurer would actually have to pay out £1 million, or even £500K, to rebuild an ordinary 3 bedroomed semi (or whatever you have), so the actual risk to the insurer is the same in both cases. The headline figure, whether 1 million or £500K, is a purely nominal amount which ensures that you are fully covered.

If you work out that the rebuild cost of your home is actually, say, £136,000 then you can shop around and find a policy which will insure you for precisely that much if you want - but you'd better be damn sure that the rebuild cost really is £136K, as if it actually costs £146K to rebuild your house you'll be stuffed. And you may well find that there is little or no saving to be made by doing this as the insurer can already make a reasonable estimate of the rebuild cost from the number of bedrooms, the construction materials etc, so the one which offers £1 million rebuild cover will be able to price on the basis that their maximum likely payout is somewhere in the region of £136K anyway.

kingstreet

ellrhow wrote: »

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

Option 1;-

Bedroom rated cover - set sum insured from provider, no user input
4 bedroom detached house
ST18 postcode
1995 build year.

Annual premium £x

Option 2;-

Sum Insured £? input by user
4 bedroom detached house
ST18 postcode
1995 build year

Annual premium £y

The method of calculation in option 1 uses a flat/blanket sum insured, or may even be unlimited.

The method of calculation in option 2 uses the sum insured you input.

The cost difference shows how much one route to insure a property may be cheaper than the other. Seeing a bigger sum insured in option 1 does not automatically mean it will be more expensive than option 2.

Have a play around with different quotation engines and see for yourself...

weejonnie

One consequence of this is that the price of fixed sum insured properties will be higher than those of chosen sum insured properties.

Suppose the insurers estimate that the average cost of rebuilding a home is £150,000 and base their premium on that sum insured.

If your home has a rebuilding cost of £100,000 then you will pay more for a bedroom contract than if you go for a chosen sum insured contract.

If your home has a rebuilding cost of £200,000 then obviously you will do better with a bedroom rated contract.

However this means that the average cost to rebuild properties on a bedroom contract will be more than £150,000 - which was the original estimated risk sum insured.

Therefore the cost of the bedroom contracts will steadily increase as the average rebuilding cost of homes insured under them increases.

I havent worked out exact figures but insuring a property in ST18 came out at £300 a year on a sum insured basis rather than the £500 it might be on a bedroom basis.

System

Having read the awful thread under the AXA heading I'd want my "rebuilding cost" to be at least twice the real cost.
"Unlimited" will do nicely.

jellie

Clifford_Pope wrote: »

Having read the awful thread under the AXA heading I'd want my "rebuilding cost" to be at least twice the real cost.
"Unlimited" will do nicely.

Totally agree, that thread should be a lesson to anyone arguing against paying a little more for an unlimited buildings sum insured.

InsideInsurance

weejonnie wrote: »

Therefore the cost of the bedroom contracts will steadily increase as the average rebuilding cost of homes insured under them increases.

Whilst this is theoretically correct it does make a number of assumptions around people switching insurers etc. It also excludes the marketing of "unlimited cover" has a pull which can overcome pricing differences and thus help keep the average exposure down.

We have a bedroom rated policy and certainly on the contents side we are massively higher than your average 2 bed property hence bedroom rated makes sense for us but annually our premiums have stayed the same or trickled down over the last 6 years rather than having gone up.