When buying home cover, it’s important to understand the difference between what insurers deem to be ‘flooding’ and what they see as ‘escape of water.’ Get it wrong, and you could be left seriously out of pocket.
The problem is often one of perception; consumers see water everywhere in a home and think of it as a ‘flood’. But depending on the source of the ‘flood’, their home insurance may or may not cover it as standard.
When insurers are looking at claims involving water damage, they usually place them into two types. One is for water which has entered the home due to external sources. This could be due to a ‘natural’ event, such as torrential rain. However, if the cause of the water damage is from within the home, such as a pipe leaking, then it’s categorized as ‘escape of water’. This is also the case if the source is a neighbouring property, or flats, if you live in a block that are above or even below yours.
It’s the responsibility of the person taking out cover to answer the insurer’s questions truthfully, and to the best of their knowledge. This includes any questions about whether the property being insured is on a flood plain, in an area deemed ‘high risk’ or has experienced flooding before.
If a claim is made and the insurer subsequently finds out they have not been supplied with the correct information, the claim could be denied.
Similarly, an ‘escape of water’ event caused by pipes which burst due to freezing in the winter, for example, may also cause problems when it comes to claiming on cover, if suitable precautions aren’t taken. Insurers may expect policyholders to lag exposed pipes, or keep heating on at a minimal level to prevent burst pipes.
Misconceptions regarding insurance terminology covering ‘escape of water’ and ‘flooding’ show just how important it is when taking out cover to be aware of what is and isn’t covered by a policy.
What is does “rebuild cost” mean?
Ask many homeowners what their home is worth ‘for insurance purposes’ and you’ll get some fairly confused answers.
We often see customers giving the market value of their home, when asked how much their home should be insured for, rather than the ‘rebuild’ cost. However, the difference between the two can be tens of thousands of pounds!
Market value versus rebuild value
If your home were to burn to the ground, or be completely destroyed in some other way, how much would it cost to rebuild it? The correct answer is not how much someone would pay you for it if you were to put it on the market.
Completely rebuilding from scratch
The rebuild cost is how much it would take to completely rebuild the property from scratch.
The sum shouldn’t just include the building costs themselves, but also other factors, such as clearing the site, all materials and professional fees for architects, surveyors and local councils.
And you don’t need to take into consideration the value of the land the property stands on as this won’t need to be ‘rebuilt’.
To give an example; a 3 bedroom Victorian terraced house in a commuter town around London might cost in the region of £250,000 to rebuild. However, depending on the town of course, it could be worth double that in terms of market value, or even more.
However, in places where house prices and building costs are much lower, such as parts of Scotland and the North, the rebuild value might be £200,000, which could actually exceed the market value by quite possibly £50,000.
Why is getting the rebuild value right important?
Many home insurance policies have a blanket maximum claim limit for rebuilding a home of £1million, which would cover the necessary work to start from scratch when building most properties.
However, not all do, and if you get it wrong, you might not be able to claim the full amount for the rebuild and potentially be unable to afford to make up the difference; a scary thought for most people.
