When I go through a home insurance policy with someone who hasn't touched it in years, I almost always find the same problem: the sum insured has stayed frozen at the figure declared when the policy was taken out, while the real cost of rebuilding the home or replacing what's inside has kept going up. That mismatch has a name: under-insurance. And it only really shows up on the day you need to use the policy.

What under-insurance is and why it's so widespread in 2026

Under-insurance happens when the sum you declared in your home insurance policy — the maximum the insurer commits to cover — is lower than the real value of the home or its contents at the time of the claim. It isn't a one-off mistake, and it doesn't only happen to people who got it wrong from the start: more than anything, it's the result of a policy nobody has looked at again in several years.

The reason this is more frequent in 2026 than it used to be comes down to the sustained rise in the cost of building materials and labour. A figure that faithfully reflected the rebuilding cost three or four years ago may well fall short today, without the policyholder having done anything differently: the market simply moved, and the policy didn't move with it.

The idea, in one sentence: under-insurance doesn't depend on whether or not you've had a claim, but on whether the declared sum still reflects what it would cost today to rebuild your home or replace your contents — and that figure rarely stands still.

How the right sum insured is worked out

The sum insured is not the same as the market value of your home, even though that's the most common confusion. Home insurance doesn't cover the land or the part of the price that comes down to location, but the cost of rebuilding the property from scratch: materials, labour and, where needed, professional fees. That rebuilding cost — not the price the house would sell for today — is what you should declare as the buildings sum insured.

Buildings (the property itself)

The cost of rebuilding the property from scratch, not its sale price or the value of the land it stands on.

Contents (what's inside)

Furniture, appliances and belongings at today's replacement value, not the price you paid for them years ago.

Underestimating either of the two sums — buildings or contents — is what creates under-insurance, and both need reviewing separately: one being correctly worked out is no guarantee that the other one is.

What happens if you're under-insured and you have a claim

This is the detail that gets explained least and surprises people most: the insurer doesn't automatically pay one hundred per cent of the damage just because the loss is smaller than the sum insured. If the sum declared in the policy is lower than the real value of the home or the contents at the time of the claim, what's known as the proportional reduction rule applies: the settlement is cut by the same proportion by which the property was under-insured, even if the actual damage is small and even if you never come close to your policy limit.

In practice, that means someone can spend years paying their premium feeling well covered and then, the day a partial claim happens — a burst pipe, a fire confined to one room — discover that the insurer only pays part of the damage, precisely because of that gap between the declared sum and the real value.

  • ✓The proportional reduction rule applies to partial claims too, not only when the whole home is lost.
  • ✓It doesn't depend on how big the damage is, but on how far the declared sum sits from the real value of the property.
  • ✓It affects buildings and contents equally, each one separately.
  • ✓It can be avoided by reviewing and updating the sum insured before the claim happens, not after.
This article is general information and does not replace personalised advice about your specific situation. Exactly how the proportional reduction rule is applied, the criteria for valuing buildings and contents, and the terms for updating the sum insured all vary by insurer and by policy, so the most reliable approach is to review the particular conditions of your own contract.

When it's worth reviewing your home insurance

You don't have to wait for the annual renewal to look at it. The moments when reviewing the sum insured pays off most are: after a renovation — here I explain in more detail what changes in your home insurance when you renovate → —, after buying valuable furniture or appliances, and, generally, every two or three years even if nothing obvious has changed, simply because the rebuilding cost keeps moving with the market.

It's also worth reviewing if your current policy has been the same for quite a few years and you've never gone back to discuss the declared sum with your insurer. That figure very often stays exactly the same renewal after renewal, while everything around it — material prices, labour, the value of your belongings — has carried on changing.

How I can help

If you can't remember when the sum insured on your home policy was last reviewed, or you simply want to confirm that the figure still makes sense today, I can go through it with you, calmly. It's a straightforward check that can save you a much bigger disappointment on the day you actually need it.