Enhancing your home has consequences for insurance cover

AXA Insurance estimates that an extension or conservatory adds €13,000 to €25,000 to the rebuilding cost, while built-in wardrobes and hardwood timber floors add at least €3,000.

The financial consequences of home-improvement jobs stretch beyond making the final payment to the contractor and waiting for the bank to stop debiting loan repayments from your account each month. Making improvements could also mean you need to increase your home insurance cover.

The sound of a power drill on full blast in the early hours of the morning may be a distant memory but insurance companies will, unsurprisingly, recommend you review your policy if you want to sleep easy at night.

Home insurance is divided into two categories: the buildings sum insured and contents insurance.

"The buildings sum is anything that would be left behind if you sold the house and put everything you could take with you into the moving van," says Mr Ciarán Mahan, marketing manager for Hibernian General Insurance.

The amount you need to insure is the cost of rebuilding the home in the event of a disaster such as a flood or fire, not the market value of the home.

To help home-owners calculate this amount, the Society of Chartered Surveyors produces an annual guide with a table for the cost of rebuilding different types of houses - terraced, detached, semi-detached, bungalow - in different parts of the country, depending on the square footage of the house.

The sum insured should be increased to allow for better-than-average kitchen fittings, built-in wardrobes, finishes such as wooden floors and any other items not normally included, according to the guide, which will be updated in early August.

"After the basic shell of the house there's the decoration to consider and that's when the cost goes up," explains Mr Willie Sparkes of AXA Insurance.

"If you've done a major extension, or even put a new floor in, you should be making sure the amount of cover is increased to reflect that. You could spend €15,000 on a brand new kitchen and you wouldn't have that much change, and this cost should be part of the sum insured."

"People are buying more quality stuff," says Mr Sparkes.

A carpet could be professionally dried and relaid in the event of a flood, but you can't do that with a wooden floor, he notes.

If the property is not fully insured, the home-owner may have to pay a proportion of the reinstatement costs.

For example, a house may be insured for €120,000 but actually cost €200,000 to rebuild. The insured sum is only 60 per cent of the total reinstatement cost. In the event of a partial loss, say for example a fire destroying a kitchen, costing €10,000 to replace, the home-owner may only receive €6,000 from the insurance company.

The bad news is that premiums have escalated over the last five years due to rising construction costs and claims inflation and are expected to increase by 25 per cent this year.

The increases are also a delayed reaction to changes in the industry in the late 1990s, according to Mr Sparkes.

Many policies will now include options to cover for accidental damage such as paint spilled on a carpet or nails banged into walls causing structural damage.

"All these extra claims came in with the wider coverage, but the rates weren't increased. Suddenly there was a building boom, but insurance companies were still slow to move," he says.

Even when people do renew their policy, they will often increase the contents insurance but forget about the buildings sum insured.

"People take out home insurance initially with their mortgage, then they tend to forget about it. They should be checking the sum insured each year," says Mr Mahon at Hibernian.

"If they are making an addition above their garage, say, they should review their home insurance policy at that time, especially as the sum insured might not have been right for the existing house."