Expert opinion in response to the article “Extension insurance: don’t leave yourself exposed” 11 January 2012.
BCIS read with interest the article on 11th January 2012 highlighting the issue of updating insurance policies after extending properties. In the current economic climate, more property owners are choosing to extend rather than move, making the need to educate the market on this topic even more relevant.
The Building Cost Information Service (BCIS), a business of the Royal Institution of Chartered Surveyors (RICS,) regularly looks at the impact home improvements and renovations are having on residential rebuilding costs. BCIS has been consulting to the ABI for over 30 years and is the leading provider of independent residential rebuilding costs for houses, bungalow and flats within the UK.
With a continuing downward spiral in house prices over the last couple of years, there has been an ever increasing trend for homeowners to improve their homes rather than move in such an unstable market. With an estimated £25 billion being spent annually in the UK on home improvements and DIY, this trend is not looking likely to reduce any time soon. However, the question remains as to how many of these property owners will accurately update their insurers with the details of such changes?
BCIS is keen to highlight the impact such works will have on the rebuilding cost of a property and advises the best way to recalculate the costs to ensure that the right level of insurance cover is purchased.
Ultimately, to ensure an accurate level of cover is obtained, it all comes down to an accurate rebuilding cost being established for the property and this will increase after a home has been extended. Policyholders who do vigilantly notify their insurer of any improvements to their home should subsequently not fall into the other common trap of increasing the sum insured by the amount of perceived value that improvements add to a home or the amount paid for the work. The correct insured value should be the cost of rebuilding the entire property in the event of a total loss and it’s a misconception that if an extension costs £15,000, the sum insured should be increased by £15,000. The rebuilding cost of the extension as part of a total rebuild will always be lower as the complexities of adding an extension to an existing building do not exist. It should also be noted that although VAT is normally payable on the cost of an extension, it does not apply if the extension were to be rebuilt at the same time as the rest of the property.
As most policies are on a new for old basis, generally speaking it’s only work that increases the size or specification of the property that affects the rebuilding cost. Replacing a tired kitchen with a new one of similar scope and quality will not increase the rebuilding cost.
Quoting for buildings insurance and ensuring that homeowners have an adequate level of cover is purely reliant upon the accuracy of the information provided by the homeowner and this can prove a tricky undertaking. BCIS recommends that all homeowners, even those that have not carried out any home improvements, should review the rebuilding cost of their home every 3 years, even when it is index linked, and notify their insurer accordingly in order
to stay abreast of a wide range of factors that can affect rebuilding costs.
Extending a property doesn’t only affect sum insured based policies. Even those bedroom rated policies with capped or unlimited cover are potentially at risk. Failure to disclose an increase in the number of bedrooms/rooms can invalidate the policy.
It isn’t only property extensions that can cause problems with bedroom rated policies. Homeowners should take care when declaring the number of bedrooms at their property as insurers regard a bedroom as a room that was originally intended to be a bedroom when the house was built, whether or not it is currently used for that purpose. Failure to advice the insurer of the “original” number of bedrooms could result in a claim not being met in full or even repudiation.
Carrying out some home improvements could reduce the insurance premium rather than increase it. Security improvements carried out to a certain standard may lead to premium discounts.
Ultimately, BCIS recommend that policyholders regularly check the rebuilding cost of their home, whether or not home improvements have been made to ensure that they have the right level of cover at the right price.
Written by : Andrew Thompson,
International Development and Data Director, BCIS
