Underinsurance: The hidden risk facing homeowners

December 15th 2025

It’s estimated that more than half of home insurance policyholders are underinsured — a hidden risk that could result in serious financial loss if disaster strikes.

Ensuring your home is adequately insured has never been more important. In today’s economic
climate, many homeowners are drawn to the lowest premium rather than the right level of
protection, particularly with the rise of non-advised sales and online comparison sites. But focusing on price over cover can leave you dangerously exposed.

Over the past two years, the cost of building materials has risen by around 20%. Factors such as Brexit, COVID-19, inflation, and global conflicts have pushed prices higher, meaning that rebuilding a property today is significantly more expensive than it was just a few years ago. As rebuild costs increase, the amount of insurance cover required to fully protect your home must also rise — yet many policies have not kept pace.

So what is underinsurance and what does it mean to you?

When you take out insurance of any type, your premium is calculated on your individual
circumstances and the amount of cover you’ve selected. Underinsurance can result in claims being rejected, additional premiums being requested, or most commonly, settlements being
proportionately reduced by the level of under insurance, (known as “average”).

For example, if you have £250,000 of buildings cover, but your reinstatement value should be
£500,000, you may only receive half of any claim you make on that insurance. Putting this in context, if you suffered a partial loss, and the costs to reinstate your property was £100,000, the claim would be settled at £50,000 as only 50% of the replacement value was declared.

Common Causes of Underinsurance

Buildings
One of the most common discrepancies is between the market value of the property and the
reinstatement cost. If in doubt, speak to a qualified surveyor. The reinstatement value should
include the full cost of rebuilding your home using local contractors and appropriate professionals, including demolition and site clearance. This can be less than or greater than the market value.

Contents
Some of the most forgotten items are carpets, curtains, expensive cookware, clothing, and garden tools. You should assess items on the full new replacement cost, regardless of their age or original purchase price. Consideration should be given to inherited items as well as new purchases over the period of insurance.

Personal Possessions
Valuable items for which cover is needed when they’re taken out of your home (including for
travel/holiday purposes) are insured as personal possessions. Cover is not standard and you may find these items are not covered when you leave the home. Most insurers will also have different limits for single items, so check the policy wording.

Helpful tips:
 Do not be tempted to underinsure; this could lead to a larger financial loss versus the
premium saving for insuring items for their true value.
 Check the definitions of contents and buildings – insurers’ policy wordings differ so it is
important to correctly identify where items should be insured.
 Read the small print – insurance policies have different covers and inner limits. Knowing
what these are may save the inconvenience of a rejected claim.
 Carry out regular valuations/assessments, particularly if you improve your home or gain new
possessions.
 Speak to an insurance broker who can talk you through the covers and provide you with a
policy that is tailored to your needs.

Research suggests that some 70% of households could be underinsured (RebuildCostAssessment) and underinsured properties were found to be covered for just 67% of their actual rebuild cost, up from 63% in 2024. It is therefore important that suitable cover is sought. You may find you need to increase the sums insured under your household insurance. The prospect of doing so, and premiums going up, is not one you will relish. However, once a loss has occurred, it is too late to avoid the negative impact of underinsurance.

Our advice is talk to a broker, like Network Insurance. Whilst a broker is not expected to calculate the sum insured, they must take reasonable steps to ascertain your needs. They can provide you with an explanation of how to calculate an appropriate sum insured, as well as providing clarity on the cover so you can fully understand the terms and conditions.

In addition to having a range of insurance products for policyholders who know their sums insured, Network also has access to a range of insurers who offer blanket cover with £1,000,000 buildings cover and £100,000 contents cover as standard, which can reduce the worry of underinsurance.

At Network we have access to insurers whose contents only policies start from as little as £65, while buildings and contents start from as little as £175. Get in touch with one of our qualified advisers today for your tailored advice.