Insurance reinstatement assessment

Why rebuild cost and market value diverge

Market value is what someone would pay for the property as it stands, in its location, with its land. Rebuild cost is what a contractor would charge to construct an equivalent building on the cleared site.

In a high-value area the market value can sit well above the rebuild cost, because the land carries the value. In a low-value area, or with an unusual or heritage building, the rebuild cost can exceed what the property would sell for. Neither situation is an error, and insuring on the wrong one of the two figures causes real problems.

What underinsurance actually does

If the sum insured is materially below the true reinstatement cost, an insurer may reduce a claim proportionately — including a partial claim, not only a total loss. A kitchen fire can therefore be underpaid because of a figure set years earlier and never revisited.

Insurance terms vary and this is general information rather than advice on your policy. Your insurer or broker should confirm how their average or underinsurance provisions operate.

• Demolition and removal of debris
• Professional and local authority fees
• Meeting current building requirements when rebuilding
• Access constraints affecting how the site can be worked

Buildings that need a proper assessment

Standard modern houses are often covered adequately by an insurer's own calculator. The figures that go wrong belong to buildings those calculators were never designed for.

Listed buildings, where repair may require matching materials and traditional methods. Buildings of unusual construction. Converted and non-standard properties. Blocks of flats, where the whole structure is insured and the leases determine the arrangement. Properties with difficult access, where the cost of getting plant to the site is significant.

Listed and traditionally built property

Reinstating a listed building is not the same exercise as rebuilding a modern one. Listed building consent governs what may be done, and repair is expected to respect the significance of the asset, which affects both materials and labour.

Historic England, Historic Environment Scotland and Cadw publish guidance for owners of designated heritage assets, and an assessment for such a building should reflect that reality rather than a standard rate per square metre.