A common property owners myth: there is a direct relationship between the rebuild cost and the market value of a property. Unfortunately this rarely works out and leaves property owners at risk of under-insurance in the event of a claim.
For example, a property in the centre of London could have a market value in the millions and a rebuild cost at a fraction of this amount.
So how much would it cost to rebuild your property? This can also called the ‘reinstatement cost’ or ‘sum insured’ by insurers but in essence, this figure needs to be the total amount you would need to pay to rebuild your property from the ground in the event of a total loss. This figure needs to include:
- Building materials
- Labour
- VAT
- Debris Removal costs
- Professional Fees (surveyors/architects)
Pricing tables can be used to calculate rough rebuild costs of properties but your property might not be standard. For example, older buildings may contain asbestos which greatly increases the debris removal costs and listed buildings often cost more to rebuild.
Insurers use the rebuild cost as the main rating factor in property owners insurance and this is the maximum amount they will pay in the event of a claim. Most property insurances have an average condition which means that insurers will only pay a claim in proportion to the underinsurance. For example, if you insure a property for a rebuild cost of £250,000 and it costs £500,000 to rebuild, an insurer will only pay 50% of any building claim.
To talk to us about your business insurance requirements in more detail, please contact us on 01302 341 344.
By Kate Bacon ACII – Commercial Account Handler