As a landlord, you are responsible for ensuring that your property is insured for the correct amount. Landlord insurance is calculated on the reinstatement valuation of your property. That is what it would cost to rebuild the property back to its original state. Many landlords often use their surveyors’ report for this figure. If the property has recently been bought or re-mortgaged this won’t be an issue. However, it is still essential to review the cost of your home regularly and ensure your rebuild valuation remains accurate.
Did you know that if you make a claim and the reinstatement cost is incorrect it could cause you a problem?
When you insure your assets, like a building, you must advise the insurer of the value to insure the property for. If you get this insurance value wrong and it is lower than the real reinstatement cost assessment value then you are at risk. Meaning that in the event of a claim insurers will only pay a percentage of the claim amount. This method of paying out a percentage of a claim is known as a condition of average. You can read more about how this works in our article on average clauses in insurance:
https://iinsure365.co.uk/understanding-the-average-clause-in-insurance/
Ensuring the cost of your home is correct helps avoid this situation.
For example, the insurance policy covering the listed buildings is based on a sum insured of £80,000.00. When a claim occurred the real insurance value was £100,000.00. The proportion of average would then be £80,000.00 or 80%. You would only receive 80% of any loss that you suffer.
There are various ways that property owners can calculate the rebuild cost but the easiest way is via https://abi.bcis.co.uk/. The website will work out for you the exact residential rebuilding cost. It only takes two to three minutes to register and go through various questions to help you. The calculator asks about your property type, construction details and whether the building uses standard materials so it can provide a reliable estimate.
You could alternatively instruct a local surveyor. Their costs are upwards of £250.00 but it is so important that you get it right when assessing the cost of your home.
You can also read our guide explaining how landlords calculate rebuild costs correctly here:
https://iinsure365.co.uk/landlord-insurance-how-to-work-out-the-rebuild-cost/
You will often find that the rebuild figure is lower than what the property’s market value is. This is because in real terms it is what it costs to rebuild not what it is valued at today. In other words, it answers the common question many homeowners ask: “how much would it cost to rebuild my house?”
Affordable and professional insurance valuations
We have teamed up with rebuildcostassessment.com to provide you with affordable reinstatement costs. Buildings insurance should cover the amount required to rebuild. Yet, fewer than one in ten commercial or residential properties in the UK are covered correctly.
If you are over-insured, you are paying too much for your building insurance. If you are under-insured, you face a reduced pay-out in the event of a claim.
We are able to provide you with a comprehensive rebuild cost assessment (RCA) report guiding you on how much you should insure your building for. This service also considers professional fees and labour and materials required to fully restore the building.
You can read more about how this works in our article on rebuild cost assessments:
https://iinsure365.co.uk/reinstatement-cost-assessment/
What is declared value and building sum insured?
The declared value is the value of the bricks and mortar. It covers everything fixed to the property including fitted kitchens and bathrooms from the day the policy starts. It is the most important figure when calculating the cost of your home for insurance purposes.
The sum insured figure is always higher than the declared value. This is to cover the cost or rise in building materials or inflation over the period of the insurance.
Building costs are affected by labour and materials, which is why insurers apply inflation protection. This ensures that if you ever need to rebuild my house after major damage, the policy still reflects the true rebuilding cost.
Protecting Your Property – Underinsurance Guidance
As a property owner it is crucial to ensure that your assets including buildings, contents and rental income are adequately insured. Taking buildings insurance as an example, your sum insured should reflect the cost to totally rebuild your home.
Many property owners simply ask themselves, “how much would it cost to rebuild my house if it were destroyed?”
However, underinsurance is one of the most common problems landlords face when making a claim. You can read more about the common issues landlords face when claiming on insurance here:
https://iinsure365.co.uk/problem-claiming-landlord-insurance/
Why it’s important to get your sums right
The main reason for getting your sums insured right is because of the possibility of underinsurance. Most insurance policies will have an underinsurance clause called ‘average’.
If your sums insured are too low, the amount you are paid can be proportionally reduced.
Summary
I believe that it is absolutely critical for landlords to check their landlord insurance rebuild cost.
Whilst some policies suggest a free rebuild guarantee, these only work when insurers have accurate rebuild data and correct information about the property type.
I would strongly advise all landlords to check their rebuild figures using the links we have provided above so that if the worst happens and you need to rebuild my house, your insurance cover will respond properly.
