Two thirds of UK households underinsured as inflation causes replacement costs to soar

UK contents insurance policies failing to cover price rises

The cost of home insurance has soared to a five-year high to an average annual cost of £281¹, yet 12 million residential properties² could be underinsured thanks to rising inflation pushing up the cost of replacing home contents.

What’s more, exclusive research from MoneySuperMarket reveals that a further 12 million residential properties have no home contents insurance at all³.

Figures from the Association of British Insurers (ABI) used in 2016 show the average value of contents in a three-bedroom family home was estimated at £55,000⁴.

The new study by MoneySuperMarket reveals that when this figure is adjusted for inflation, this value would increase to £72,928.45 – rising more than 33% since 2016⁵.

We looked at all contents insurance policies bought through MoneySuperMarket and discovered two thirds of policies have cover for less than £70,000 worth of contents⁶.

This means that, in a worst-case scenario, millions of Brits will not have enough protection for all their items if they are lost or damaged and could be left with a hefty bill to buy replacements.

What’s more, MoneySuperMarket data reveals that of those underinsured, the majority of households have less than a third of the cover they would need, insuring contents for a value of just £10,000 - £20,000.

Contents insurance protects policyholders if any items within homes or buildings are lost or damaged.

However, as contents insurance policies don't offer cover that adjusts with inflation, households should review their policies regularly to ensure they have the correct amount of cover for the changing value of their belongings.

“If you find yourself having to deal with a disaster only to discover that you don’t have enough insurance, facing expensive replacement bills can be a shock – at a time when you and your family are also struggling to deal with disruption and eager to return to normal life,” said Alicia Hempsted, insurance expert at MoneySuperMarket.

People often only make a rough calculation when they value their possessions, thinking of the most obvious items, such as jewellery, computers and furniture, and the price they paid for them – not their current replacement value. Items that are more ‘permanent’, like carpets, curtains and cookers, as well as smaller items that collectively add up, like clothing and soft furnishings, are often overlooked and undervalued.

Carpets alone can be hugely expensive to replace, with the bill for doing so potentially running into tens of thousands of pounds if they’re in most rooms of a house.

Industry professionals recommend you go through each room and make a list of all the contents, not forgetting, as mentioned above, all the fixtures and fittings, placing a figure by each item to achieve a total.

Don’t forget that most policies offer ‘new-for-old’ cover, so you shouldn’t guess how much an older item costs but check how much the same or equivalent item would cost to buy new at today’s prices.

How to ensure you are properly protected

Keeping hold of the receipts – or digital copies – for expensive purchases is probably the best way to ensure you will be able to claim for them if necessary.

Taking an inventory of your home contents (and increasing your contents cover accordingly if necessary)

Taking photos of your valuables (ideally marked with the date and showing the condition of the items)

Using your mobile phone to take a quick video of the contents of your home

Standard contents insurance policies have a single item value limit of around £1,000. Valuables such as jewellery, family heirlooms, and antiques that are worth more than this may need to be insured under a separate policy

Most of us don’t realise how much our belongings are worth. For example, a single wardrobe containing a few decent suits and work shirts, a couple of dresses, shoes and handbags could potentially be worth several thousand pounds.

Not all policies cover items kept outside the main home, but if you want to get a quote that includes these – including protection for flooding or accidental damage – you’ll need to know how much they’d cost to replace. Don’t forget to include garden furniture and expensive potted plants, as well as all items in garages, garden offices, separate conservatories and sheds, such as mowers, tools and garden furniture.

¹ Based on MoneySuperMarket consumer data: average annual price of contents and buildings and contents insurance policies for all property types sold through MoneySuperMarket between 01/01/24 and 30/04/24

² The figure of 12 million underinsured residential properties was calculated based on the total number of residential dwellings in England and Wales (taken from ONS Census data 2021), the number of residential dwellings in Scotland (taken from National Records of Scotland data 2021) and the number of residential dwellings in Northern Ireland (taken from the Department of Finance Northern Ireland data 2021), which equates to a total of 30.7 million residential dwellings.

From this figure of 30.7 million the number of uninsured residential properties (see calculations below) was deducted to provide the number of existing buildings and contents and contents insurance policies in place (FCA data 2022).

MoneySuperMarket sales data of purchased buildings and contents and contents insurance policies between January – April 2024 with contents cover of less than £70,000 was used to estimate the percentage of residential properties that are underinsured across the UK.

³ Substantiation for 12 million residential dwellings having no contents insurance was calculated by applying the number of contents policies in place (18.7 million - sourced from FCA data 2022) to the total number of residential dwellings in the UK (sourced as above) revealing the deficit.

⁴ https://www.thisismoney.co.uk/money/mortgageshome/article-3339322/How-work-need-insure-house-for.html

⁵ Based on Bank of England inflation calculator [https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator]

⁶ Data generated from buildings & contents and contents insurance policies for properties with three bedrooms bought through MoneySuperMarket between January and May 2024