How Does Underinsurance Work? Rising Costs Could Leave You Exposed

With construction and labour costs continuing to rise in Ireland, many homeowners may be underinsured and not even realise it. If your home insurance doesn’t reflect the true cost of rebuilding your property, you could be left seriously out of pocket in the event of a claim, especially in the case of a total loss. So, how does underinsurance work and how can you avoid it?

What Is Underinsurance?

Underinsurance occurs when the sum insured on your home insurance policy is less than the actual cost of rebuilding your home or replacing its contents. In the event of a claim, whether partial or total, your payout may not be enough to cover the real cost of repairing, rebuilding, or replacing what’s lost.

🚨 Why It’s a Problem

Partial or Total Loss:
Even in a partial loss (e.g. storm or fire damage to part of your home), your claim may be reduced in proportion to how underinsured you are. In a total loss, the payout is capped at the sum insured — which might not come close to your current rebuild cost.
Rising Costs:
Inflation, increased construction costs, labour shortages, and supply chain issues have all pushed rebuilding costs higher than many policies account for. In particular, older ones that haven’t been reviewed in recent years.
Unexpected Expenses:
Your policy needs to account for more than just bricks and mortar. Rebuild costs include:
- Demolition and site clearance
- Debris removal
- Professional fees (architects, engineers, surveyors)
- Compliance with updated building regulations

If these aren’t factored into your sum insured, you could be left with significant out-of-pocket costs — even on smaller claims.

How to Avoid Being Underinsured

✅ Insure for Rebuild Cost, Not Market Value
Your home should be insured for what it would cost to rebuild — not its market value (what it could sell for). These two figures are often very different, especially in high-demand or rural areas.

✅ Review Your Cover Annually
Don’t just auto-renew. Review your policy each year to ensure your coverage reflects current building and labour costs, and that it includes everything it should.

✅ Get a Professional Valuation
The Society of Chartered Surveyors Ireland (SCSI) provides guidance and tools to help estimate your home’s rebuild cost. Visit scsi.ie for more information or talk to your insurer or broker.

✅ Check Your Contents Cover Too
Many homeowners underestimate how much it would cost to replace furniture, electronics, clothing, and other personal items. Walk through your home and take stock of what you own — then make sure your policy covers it adequately.

✅ Factor in Inflation
Ensure your policy includes index-linked cover or an allowance for inflation, to keep pace with rising material and labour costs throughout the year.

LHK Group Can Help

Still wondering how does underinsurance work or whether your home is properly covered? At LHK Group, we work closely with homeowners across Ireland to make sure their insurance reflects today’s real costs. We’ll help you: