Underinsuring your home may cut the cost of House Insurance but it could cost you dearly when you need it most

With the economy still struggling and money being tight, everyone is trying to reduce costs and making sacrifices to reduce costs to an absolute minimum. But cutting away from your house insurance cover just to save a bit of money could hit your finances very hard when you need it the most. An ‘easy’ way for many to beat down premiums is by insuring their home and its contents at sums for less than its actual value.


While this means savings now through lower premiums, the true cost of being underinsured at the time of a claim is many, many times more those ‘savings’ on premiums. If a claim has to be put in when you are underinsured, the insurer will not pay out on the full amount needed to carry out repairs or replace damage goods. Many companies in this instance will apply an ‘average clause’ principle where they will only pay out a proportion of the claim based on the equation below:


Sums Insured


Amount Sought in Claim

Value of Property


For those who aren’t the best at maths – don’t worry. As we like to make things simple, we are going to explain how this works by using an example. Consider you have a property that is worth €200,000 but you decided to insure the building sums for only €150,000. You think that everything is OK – until you have to make a claim for structural damage to the home to the tune of €20,000.


But, it’s not the €20,000 you will get that would have covered that hefty bill from the building contractor. You would just get €15,000 as per the example below:









In this instance, being underinsured would cost you €5,000 – a big sum for anyone to have to fork out. This example really brings home the importance of having the right level of cover even if it costs that little bit more.