Your Home Insurance is based on accurate rebuild and contents sum insured values (commonly referred to as Buildings and Contents Insurance). Consequently, these form the basis of what will be paid out in any claim and also allow the underwriter to price the risk accordingly. In essence, if you provide inaccurate values, you could be either underinsured or paying too much for your insurance. In the light of that, this article is about how to calculate the rebuild value of your home.
Firstly, only you can decide on sums insured, we cannot advise you as we do not know your property or the amount of contents/valuables. e.g.
- So, if your rebuild figure is £500,000 and you have insurance for £1million you may be paying more for your insurance than you need
- Conversely, if your rebuild is £1million and you only have insurance for £500,000 you will be underinsured and may not receive a full pay out in the event of a claim
Average clause
As can be seen, it is important that your property is insured for its full value to avoid claims being reduced due to under-insurance. Equally, when a property is under-insured, any claims made will be subject to ‘average’. As a result, any valid claim pay-out will be proportionally reduced by the amount that the property is under-insured.
An example of average
A property insured for £500,000 but actually costs £1,000,000 to rebuild. In that case, the property is only insured for 50% of the sum it should be. Therefore, claims will be settled on this basis e.g. if the property suffered a loss totalling £10,000, the insurers would only pay a maximum of £5000 (50% of the loss).
In any event, for cases where under insurance is proved to be wilful or deliberate, there is a risk of the Insurer declining the whole claim and the policy considered ‘null and void’.
Without a doubt, reasons to state a low rebuild or contents value is to try and reduce the cost of the policy. Alternatively, you may not know the real values. Even so, to give an inaccurate value could lead to a refused claim and be very costly for you.
How to calculate the rebuild value of your home
Unfortunately, Financial Conduct Authority rules dictate we are unable to advise you as to what your sums insured should be. However, here are a few tips to help you check whether you have adequate cover:
Rebuild Cost
Chiefly, the rebuild cost is the amount it would cost to completely rebuild your property if it was destroyed beyond repair. Regardless, the rebuild cost includes the price of labour and materials and is usually lower than your property’s sale price or market value. Although there are some areas of the UK where the rebuild value is more than the resale value.
In effect, if you own a standard construction, brick-built property, there are several ways how to calculate the rebuild value of your home:
- firstly, use the Building Cost Information Services (BCIS) online calculator. Specifically, you will need the ground square footage and age of the property
- secondly, check your mortgage offer/terms. In reality, these have a reinstatement or rebuild value that you must insure for as a minimum. Indeed, this is normally taken from a survey to protect the lender as they have a claim on the property.
- thirdly, obtain a professional Reinstatement Cost Assessment
Undeniably, if your property is made from non-standard materials, has special architectural features, or if you live in a listed building, we recommend you obtain a professional Reinstatement Cost Assessment. In any case, there are many independent surveyors in the UK, if you need to contact one urgently, contact Modus360 on 0203 544 7270 or visit www.modus360.co.uk to discuss your needs. To clarify, we do not recommend any company and receive no financial incentive from Modus360.
Replacement of Contents
Overall, your contents should be insured for the cost of replacing them as new, not their current value. Generally, it is important to re-evaluate your contents sum insured on a regular basis, particularly after purchasing expensive items, or following a birthday or Christmas.
Subsequently, it’s worth going from room to room to list everything that you own and add up what it would cost to replace. Alternatively you might choose to list the main items in each room and then add an additional total to account for the smaller items such as kitchen utensils, books, CD’s etc. To this end, please note that clothing and household linen like sheets and towels are not usually covered on a new for old basis and a deduction would be made for wear & tear.
Still, for the majority of our customers their property is their biggest asset, therefore they need to make sure it is properly insured. Without reservation, answer any questions we pose truthfully and be specific as to what you want covered. Certainly, you might consider taking photographs or video of your contents, but if you do, make sure you keep copies of these away from the premises.
Finally, it is important you inform us either at the time of renewal, or whenever you become aware, of any changes to the value of your property, stock or contents. Although some policies may automatically increase the value of the items insured by a set percentage (index linking) each year or in line with inflation at renewal.
At this point you can get a quote or call us to discuss further on 01832-735388.