Posted 12/02/2015
If you have you ever called an Insurance Broker or Insurer for a property quote then, you will have been asked the question ‘what is the building sum insured’ or what is the rebuild value of the property?
Some of you may have given the market value of your property. Others will have given the figure on their current policy documents. But very few will have been armed with an accurate and correct figure.
What Is A Building Sum Insured or Rebuild Value?
They are one and the same thing and is just terminology. A rebuild value is, well, exactly that. The total cost to rebuild your property following a total loss. Just to confuse things, some insurers prefer to refer to it as the building sum insured, but they mean the same thing.
A rebuild value is made up of a number of factors including:
It is important to remember that a rebuild value is NOT a market value. When valuing your property for sale, an estate agent doesn’t have to think about the cost of cleaning up debris following a fire, or paying an architect to draw new plans. Likewise, a rebuild value does not include the value of the land on which your property sits. In some cases the rebuild value will be higher than the market value, in others it will be the other way around.
Why Does My Insurer Need To Know Rebuild Value?
The reason insurers will ask you for the rebuild value of a property is because it gives them the maximum figure that they are contracted to pay out in the event of a claim, which in turn, drives the premium. For example, if you have a property with a rebuild value of £100,000, insurers know that they will not pay more than £100,000 to build the property again. They will then give you a price for your policy based on this figure.
How Do I Find Out A Rebuild Value?
How you get to this figure is where many people come unstuck. Firstly, it is important to note that insurers and brokers will be unable to do this for you. The main reason for this is that they are neither qualified, nor insured, to give advice on calculating the rebuild value of a property.
If you have a claim on a property you have insured for £100,000 (as the broker told you) and the rebuild value should actually have been £120,000 – the broker could be held liable for that additional £20,000.
But also, thinking more practically, the person you are speaking to:
Unfortunately, there is no magic calculation that I can impart to you. Every property varies greatly and so their rebuild values do also. The rebuilding costs do not only include the value of the materials and labour required to rebuild your property, but also the clearance fee for the removal and disposal of any debris and any professional fees for people such as solicitors and architects etc.
Who Can Provide A Rebuild Value For My Property?
At the end of the day there is only one way to obtain an accurate rebuild cost and this is to employ a chartered surveyor to come to your property and provide you with a written report.
Quite often, this will happen prior to a lender providing you with a mortgage offer, with the surveyors report containing a rebuild value. But if your survey was carried out some time ago, or you do not have a mortgage on the property, then you will need to employ one independently.
If you don’t want to foot the bill of a surveyor then there are rebuild calculators available online. One is provided by the Association of British Insurers via their website and will give you an indication of the amount you should be insuring your property for. The calculator can be found at www.abi.bcis.co.uk and, although it requires registration, the service is completely free to use.
What Happens If My Rebuild Value is Incorrect?
As an insurance broker, I must stress the importance of adequately insuring your property. Where a rebuild value is incorrect, insurers will not pay your full claim. Your policy may even include a Condition of Average clause, which means that they will only pay the average of the cover you have paid for. For example, if you are underinsured by 20% (either knowingly or unwittingly), the insurer will only pay for 80% of your total claim, possibly leaving you with a very large and presumably unwanted bill.
If you are in any doubt as to what your rebuild value should be, then our best advice is to employ a chartered surveyor. RICS (Royal Institute of Chartered Surveyors) offer a find a free service to locate a member close to your location. If you choose to calculate the value yourself, then we can only tell you to err on the side of caution and be more generous than your figure suggests. The only time your calculation will ever be put to the test is in the event of a claim and that’s not the best time to find out that you forgot to carry the one.
I hope this article has helped clarify any confusion you might have had in relation to the importance of the rebuild value of a property. If any anybody wishes to discuss this article further, please contact me, Tom Wilkinson, directly on 01603 264350.
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