How do I work out an accurate figure to insure my property for?

This is a question that comes up regularly when our clients are insuring their buildings, and if the figure isn’t accurate, there can be some hefty financial repercussions should something happen to your property.

More often than not, people don't know what figure to use for their Buildings Sum Insured. Usually, people think that this is the market value - how much they can sell the property for rather than the reinstatement cost, which is the figure that the insurance company is looking for. The reinstatement cost is the amount that it would cost to completely rebuild your property if it were completely destroyed.  This needs to include the costs of clearing the site, materials, labour, professional and legal fees, to name a few.

How can I work out the reinstatement cost?

Don’t worry too much about trying to work out what your reinstatement cost is because we will help you with this.  We will explain to you what the insurer’s definition of what the building is from the policy, because each definition from each insurer can be different.  We also have access to a desk-based valuation service – but we can have a discussion with you and work out what your specific needs are.

People often only think about the market value because that's what the banks want to know about.  The banks are interested if they have got a mortgage on it, they want to know that if they were going to have to repossess and sell, will they be able to make their money back.

That's where it's completely different to the insurance because the insurer wants to know if there was any damage, or even partial damage to the property, they need to know how much it is going to be to clear the site and reconstruct.

Do I just insure for the value of the building?

Each insurer's wording can be slightly different and when setting the buildings are insured, you should consider any additional expenses.  For example, the car park, or maybe if there is any reinforced ground area to be taken into consideration, and if it should include any walls and fences.

What about listed buildings?

We are working on a case at the moment where our client had the property insured from £1.5 million last year. They've had a valuation done and the sum insured has increased significantly.

On this particular property, as it's a listed building, which comes with the added expense. The client thought that the sum insured had increased too much or that perhaps the valuer had over-valued it. The other factors to consider with a listed property is that they have to comply with Heritage Scotland (or England/Wales if the property was there), but also trying to get the necessary materials, the appropriate tradespeople with specialist skills (like stone masons, specialist plasterers, period window, etc) and all of the extra things that will increase the value, but also increase the replacement cost. Added to this, of course, with everything that's going on in the world just now, is the fact that the cost of building materials have increased significantly which has pushed up the replacement value.

Dangers of not setting the right value.

So, the dangers of not setting the right value is that the insurers will apply what's known as ‘average’ so they will proportionately reduce any claim settlement by the amount of under insurance. The usual example of this is if you have a policy that covers you for £500,000, but the building's reinstatement value is at £1,000,000 then the most you're going to get back from the insurer is £250,000 because you're underinsured by 50%.

How often should I have my property valued?

You should have valuations carried out at least every three to five years to make sure that your sum insured is kept up to date.  In between times we will help by having a discussion each year on the value of your properties and placing you with an insurance who offers an inflationary increase built into the cover.

We hope this has helped clear up some questions around working out an accurate figure to insure your property for.  This is something that we do all the time, so if you have any questions, hit the contact button below and we’ll set up a call! We would love to discuss this with you.