Market Value vs. Rebuild Cost
As a Property Insurance Broker it amazes me how often people will give us the market value of their property when we ask for their Buildings sum insured. Very often they will say ‘Well, I paid £250,000 for it’, but what they don’t realise is the Market Value of a property is not the same as the Rebuilding Cost.
The Rebuild, or reinstatement, cost is the amount it would cost to completely rebuild your home from scratch if it was destroyed beyond repair – including professional fees, labour, materials and the costs of clearing the site. This cost is usually lower than your home’s market value. This is because factors such as the land, location, local crime statistics, availability of similar homes and school catchment area are taken into account.
You’ll need to know the rebuild cost of your home when you come to buy Buildings insurance.
How to calculate rebuild cost for property insurance
The most accurate way to determine the rebuild cost of your home is to hire a professional surveyor or other building professional to produce a detailed estimate before discussing your needs with a Property Insurance Broker.
Alternatively the Association of British Insurers has a useful buildings rebuild cost calculator to help you do this.
If your home is made of non-standard materials (not brick-built) or has specialist architectural features, or if you live in a listed building, it’s rebuild cost may be higher than its market value – contact a chartered surveyor for advice.
If you have recently bought your home the rebuild cost will be on your mortgage valuation or deeds.
Having an accurate figure can help prevent you from over or underinsuring your house. This is important because, in the event that your home requires a complete rebuild, you might be left to cover any difference in price.
The cost of rebuilding your property will increase over time, as the costs of labour and materials increase, so index-linked policies are best – they update the sum insured each year to reflect the changing cost of rebuilding.
Construction methods are different for flats so, if you own a flat or maisonette, it would be wise to let the surveyor do the work instead of using a calculator. It’s worth noting that, as the majority of flats are leasehold, the building owner or management company will probably already have Buildings insurance in place, paid for typically via service charges.
Updating your property insurance
If you make any structural changes to your house, such as a loft conversion or extension, these are likely to affect the rebuild cost. If the rebuild cost increases without your buildings insurance also increasing to match, you could end up underinsured and left to cover the difference if anything was to happen, so it’s important to check that your buildings insurance covers anything that increases the value of the rebuild cost of your home and that you alert your insurers directly or via a Property Insurance Broker.
In the event of a claim if the rebuild cost is higher than the sum insured this is known as “under-insurance” and the full amount of the claim may not be paid.
If you’re unsure it can may help to speak to an experienced Property Insurance Broker and they can take a look at your situation.
We are Experienced Property Insurance Brokers
Call us for a no-obligation quote and review, we can help you ensure you’re correctly protected as well as identify areas for potential premium savings.