House Insurance - Sum Insured Shown on Policy but Stated Rebuilding Cost is Not

HeyTC

I've recently started managing an elderly relative's financial affairs (POA) and have come across a confusing situation with their house insurance.  The house has been insured with the same company for years, that company has now passed its business to a broker.  No problem last year with the renewal but this year the cost went up significantly.  So I tried to get the cost reduced.

I noticed the existing policy stated Buildings Sum Insured as a generic "Up to £1,000,000".  This is approximately 40% more than the actual rebuilding cost.  So I used the actual rebuild cost to ask for a new quote.  When I did this the broker's agent said that the rebuild cost currently recorded on their records was £190,000.  I questioned how that could be possible as the property is clearly stated as being a 4 bed detached.  I asked if that meant the property was under insured and was told that was the case.

The whole thing makes no sense at all.  Clearly the rebuilding cost had been stated many years ago, probably when the policy was first taken out.  However the sum insured on the policy document states £1,000,000 and not £190,000 (which is not stated anywhere on the policy).

To cut a long story short, the new quote was the same price after they updated their records with the new actual rebuild estimate.  The new policy document still says the buildings sum insured is up to £1,000,000.  What is going on?  Surely if there is a limit of less than the generic £1,000,000 it should be stated on the policy/schedule/renewal notice, which it isn't?

Hoenir

Given the probability of the total destruction of the property. For insurers it's far more cost effective to have a blanket macro policy limit. Than get bogged down in the micro level of millions of individual policy holders who cannot possibly know what the total rebuild cost will ultimately be. Remember there's costs such as being rehoused while the works are undertaken to be factored in.

kingstreet

Bedroom rated cover offers an upper limit with premiums based on number of bedrooms and postcode with no need for a rebuild cost. It sounds like you're trying to compare apples with oranges.

Northern_Wanderer

Rebuild costs are usually updated annually automatically on policies I've had. The costs are ususally based on the RICS valuations. Yes, there is a max amount of cover but the policy still needs to have a roughly correct value as knowing insurers, if something happens and the figure is incorrect, they will try not to pay out on the claim!

HeyTC

Fully understand the concept of blanket cover reducing admin costs eliminating the need for every policy holder to provide an estimated rebuild cost .  However per my original post I did mention that "I asked if that meant the property was under insured and was told that was the case".  This is what worries me.

In a complete disaster situation either the stated "up to £1,000,000" on the policy applies or the estimated rebuild cost "per their records" applies.  Nothing written in the policy itself mentions anything other than the generic "up to £1,000,000" even in the small print.  Isn't is a bit devious if the estimated rebuild cost held by the insurer is not visible to the policy holder?

I'm guessing that the sales agent may have given incorrect information.

XRS200

It's what's on the policy that matters.  

HeyTC

XRS200 said:

It's what's on the policy that matters.  

I have just been on the phone with the broker and have renewed for another year.  They have confirmed that what is written in the policy applies as you state. However they also stated that the estimated actual rebuild cost held on record should be kept up to date (which is not stated in the policy). This makes no sense to me.

To be clear my post is not regarding my understanding of the policy document, but rather that there is a lack of transparency.  There should be no need for a policyholder estimated rebuild cost to be held if there is a blanket upper limit cover on the policy.

Perhaps when a policy is first taken out the estimated rebuild cost is asked for and used to determine the quote provided to a potential customer, otherwise the quote would be the same for everyone with no variation regardless of house size (ignoring other risk factors)?

If the figure provided by the potential customer is used to determine the initial quote then, regardless of the blanket upper limit in the policy, I can see a potential for being 'underinsured' if the figure recorded is not updated each year.  It is the lack of transparency on this matter I object to.