High Net Worth Home Underinsurance: How to Check Your Cover
High net worth home underinsurance happens when the sums insured on a policy are lower than the true cost of rebuilding the home or replacing its contents. It usually builds up gradually, as valuations age, collections grow and building costs rise, and it often only comes to light when a claim is made.
This guide explains how underinsurance can affect a claim on a high-value home insurance policy, where the gaps tend to appear, and how to review your buildings, contents and valuables so the figures on your schedule reflect what you own today.
Key Takeaways
- Underinsurance means the sum insured is lower than the true rebuild or replacement cost. It can reduce a claim even when the loss is small.
- Where a policy contains a condition of average, a claim is reduced in proportion to the underinsurance. Many high-value home policies waive average or allow a tolerance, so check your own wording.
- Valuables such as jewellery, watches and art can rise in value while the figures on the policy stay the same.
- The buildings sum insured should reflect the full rebuild cost, including outbuildings, grounds and professional fees, not the market value.
- Review your sums insured every year at renewal, and again after buying valuables, renovating or extending.
Is This Guide for You?
It is likely to be relevant if you:
- Own a home with a high rebuild cost, a period or listed home, or one with bespoke interiors
- Have contents of significant value, or individual items such as jewellery, watches or art worth several thousand pounds each
- Hold collections, such as wine, antiques or coins, that have not been professionally valued for some years
- Have renovated, extended or bought significant items since your sums insured were last set
As a guide, our private client team generally looks at specialist high net worth insurance where buildings have a reinstatement value of more than £750,000 or six or more bedrooms, where contents exceed £100,000, include single items worth more than £5,000 or collections worth more than £10,000, or where jewellery, watches, art and antiques exceed £30,000.
How Underinsurance Affects a Claim
Many people assume that if they claim, the insurer will pay up to the sum insured shown on the schedule. That is not always the case.
The Condition of Average
Some policies contain a condition of average. Where it applies and the property is underinsured, a claim is reduced in proportion to the underinsurance. This applies to partial losses as well as total losses, so a modest claim can still be cut.
For example:
- True replacement cost of the contents: £300,000
- Contents sum insured: £200,000, which is two thirds of the true value
- Theft claim: £30,000
- Amount paid: two thirds of £30,000, which is £20,000
- Shortfall you fund yourself: £10,000
Many specialist high-value home policies waive average, or only apply it where the underinsurance exceeds a set tolerance. Others do not. Check your policy wording, or ask us to check it for you.
Limits on Valuable Items
Even without average, a policy will not pay more than the sum insured. If a specified watch is insured for £10,000 and would now cost £20,000 to replace, the most the policy will pay for it is £10,000.
Policies may also set a single-article limit, the maximum paid for any one unspecified item. Items worth more than that limit usually need to be listed individually on the schedule. Standard home insurance policies often have lower single-article and valuables limits than specialist high-value policies, which is one reason homes with significant contents are often better suited to specialist high-value home cover.
Limits Linked to the Buildings Sum Insured
Some covers, such as alternative accommodation while your home is repaired, may be limited to a percentage of the buildings sum insured. If the buildings figure is too low, those linked limits are too low as well.
Inaccurate Information
When you take out or renew a home policy, you are expected to take reasonable care to answer the insurer's questions accurately, including the values you give. If the information turns out to be wrong, what the insurer can do depends on how the error happened. Where it was careless, the insurer's remedy reflects what it would have done had it known the correct position. For example, if it would have charged a higher premium, a claim may be reduced in proportion. If it would have applied different terms, the policy may be treated as if those terms applied. If it would not have offered cover at all, it may be able to cancel the policy and refund the premium. Where the error was deliberate or reckless, the insurer may be able to treat the policy as if it never existed. Accurate, up-to-date values protect your position.
Where High-Value Homes Become Underinsured
Valuations That Have Aged
A valuation is a snapshot. Jewellery, watches, art, antiques and wine can change in value considerably over a few years, and precious metal and gemstone prices move with the markets. A certificate that was accurate when it was issued can be some way out today. Many insurers ask for valuations of high-value items to be updated periodically, and your policy may say how often.
Contents Added Over Time
Underinsurance is not always about one valuable item. Furniture, clothing, electronics, rugs, kitchen equipment and household items bought over many years add up, and contents figures are often estimated once and then left alone. A room-by-room inventory, with receipts and photographs, gives a far more reliable figure than an estimate, and makes it easier to see which items need specifying individually as art, jewellery or collectibles.
A Rebuild Cost Based on the Wrong Figure
The buildings sum insured should be the cost of rebuilding the home, not its market value. For period, listed or architect-designed homes, rebuild costs can be well above what owners expect, because of specialist materials, traditional craftsmanship and bespoke features. Index-linking keeps a correct figure broadly current, but it does not correct a figure that was wrong to begin with.
The rebuild figure should include:
- The main house, including permanent fixtures and fittings
- Outbuildings, garages, pool houses and garden rooms
- Swimming pools, tennis courts, ponds and fountains
- Drives, paths, patios, terraces, walls, gates and fences
- Fuel tanks, septic tanks and cesspits
- Professional fees, such as architects, surveyors and engineers
- Demolition, debris removal and making the site safe
- Meeting current building regulations and any local authority requirements
Leaving out any of these can mean house rebuilding costs are set too low, and rebuild costs on a high-value home also drive several other limits on the policy.
Renovations and Improvements
Extensions, basement conversions, new kitchens, cinema rooms and garden buildings all add to the rebuild cost. If you are planning works, tell your insurer before they start, because works can affect your cover while they are under way. Home renovation insurance can cover the period of the works, and the sums insured should be updated once they are complete.
How to Review Your Cover
A review does not need to be complicated. Work through these steps at each renewal, and whenever your circumstances change:
- Read your schedule. Check the buildings and contents sums insured, any specified items and the single-article limit.
- Check your valuations. Note the date of each valuation for jewellery, watches, art and collections, and arrange updated valuations for any that are out of date.
- Update your inventory. Add anything bought, inherited or received as a gift since your last review, and remove anything you no longer own.
- Check the rebuild figure. If it has not been professionally assessed for some years, or you have made changes to the home, consider a reinstatement valuation from a qualified surveyor. The RICS Find a Surveyor directory lists regulated firms.
- Read the policy wording. Look for a condition of average, any tolerance, and limits linked to the buildings sum insured.
- Tell your broker about changes. Include renovations, new valuables, a second home, or a change in how the home is used.
How Ellis David Can Help
We have arranged insurance for over 50 years from our office on Essex Road in Islington. Our team has 150+ years' combined experience, and we place cover with 100+ UK insurers and MGAs, giving access to 1,000+ products, including specialist high net worth home insurance from insurers that work in the private client market.
We take time to understand your home and what is in it. We review your current schedule and wording, point out where sums insured or limits look low against what you have told us, and explain how different insurers would treat your home and valuables. You deal with UK-based people, not an automated call queue, and you can meet the team who will look after your policy.
Whether you are an existing client or new to Ellis David, contact our private client team if you would like your high-value home cover reviewed, or if your sums insured have not been checked for some time.
Frequently Asked Questions
What Is Underinsurance on a High-Value Home Policy?
Underinsurance means the sums insured on your policy are lower than the true cost of rebuilding your home or replacing your contents and valuables. It can reduce the amount paid on a claim, either because the policy only pays up to the sum insured, or because a condition of average reduces the claim in proportion to the shortfall.
Do High Net Worth Home Insurance Policies Apply Average?
Some do and some do not. Many high net worth home insurance policies waive average, or only apply it where the underinsurance exceeds a set tolerance. Check the wording of your own policy, or ask your broker to confirm how it works.
How Often Should I Have My Valuables Revalued?
It depends on the item and the policy. Many insurers ask for valuations of high-value items to be updated periodically, and your policy may say how often. Items whose value moves with the markets, such as jewellery, watches and art, are worth reviewing more often than household contents.
Is the Rebuild Cost the Same as My Home's Market Value?
No. The market value includes the land and reflects the property market, while the rebuild cost is what it would take to demolish, clear the site and rebuild the home, including professional fees. For many high-value and period homes, the two figures are very different.
What Should I Do After Renovating My Home?
Tell your insurer before the works start, as works can affect your cover while they are under way. Once the works are complete, update the buildings sum insured to reflect the new rebuild cost, and add any new fixtures, fittings or contents.
This article is general information, not a personal recommendation. All cover is subject to the terms, conditions, limits and exclusions of the policy. Ellis David Ltd is authorised and regulated by the Financial Conduct Authority, register number 442066.
