Home Insurance Calculators & Their Risks
There is no shortage of sites advertising access to an online home insurance calculator – but are they worth the risk? The risk being that you may end up with insufficient cover in the event of a fire or you may pay way more than you need to for the level of cover that you actually require.
How do they do it?
How do companies calculate the amount of cover without visiting or seeing even a photograph of your property? They do it through a process that is comically referred to as guesstimating. Of course all estimates are based on an opinion, but in the case of estimates prepared by an algorithm using information provided by largely unqualified home owners, the chance of ending up with a reliable result is very small.
The operators of these sites recognise this fact, which is why they invariably carry a warning along the lines that the information they provide is general in nature and that you should accurately calculate the correct value yourself (relieving them of the responsibility and the legal liability). This of course defeats the purpose of using the calculator in the first place.
The problems with calculators
For a computer program to synthesise the complicated process of preparing a replacement valuation for a home, it has a very roundabout route to follow. Ordinarily a quantity surveyor would start the process by visiting the site, gathering all the relevant data and taking photographs and measurements of items not able to be measured from drawings. The online calculator attempts to do this by asking a lot of questions.
The biggest risk
The most critical of the questions it asks relate to the area of the building(s) belonging to the property. It is not difficult using this approach to be between 20% - 30% out in either direction. Being 20% - 30% under insured may well invoke the coinsurance clause in a typical policy. This may mean that you, the insured party, have to pay some, or all, of the difference between the insured amount and the actual reconstruction costs. Needless to say, this is not what most property owners want, when seeking insurance cover.
The most accurate method of obtaining the floor area of your property is by way of a correctly dimensioned floor plan. Most people however, who are not skilled in the process, would not be able to measure the floor areas even if these plans were available. This does not defeat the average online calculator. If you cannot supply the correct floor area, it moves on to a lengthy process of asking you about the approximate size of each room. To be even close to the right answer, you must first of all ensure you remember all the various rooms in your property and then provide their measurements using the closest match to the size provided by the calculator.
How much can they end up costing you?
If you are paying say $3,000 a year for home insurance, and the calculator you used produced a result 30% higher than it needed to be, this will be costing you around $900 a year in premiums that you don’t need to pay. Alternatively, if it produced a result 30% lower than it should have been, your exposure to a coinsurance payment in the event of a claim is high.
A safer approach
A safer and smarter alternative is to obtain a professionally prepared replacement insurance valuation for your property at an affordable cost.
For more information regarding this service, visit our insurance valuation services page