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Building Insurance For Your Home – Is Your Sum-Insured Figure Correct?

Posted on Friday, January 20, 2017

Building Insurance For Your Home – Is Your Sum-Insured Figure Correct?

Insurance cover is one of life’s necessary evils and building insurance on your home is no different.  You hope you will never need it but when the worst happens it is one of the first things you will turn to.

Most building insurance policies will ask you, the policyholder, to provide a figure which represents the cost of fully rebuilding you home in the event of damage due to an insured risk – fire being the most common.

The importance for this figure needing to be a correct reflection of the costs specific to your property should not be understated as insufficient cover can lead to a reduced payout by the insurance company in the event of a claim being made.

Many people would admit to either guessing their rebuild costs or applying what they think is the value of their home. There is also the temptation to put in a low figure to keep premiums as low as possible.

Another view taken is that most likely any claim will be for only a partial loss and not a 100% re-build and whilst some insurance policies will pay out up to the sum insured there will be others which have some small print referring to an “average clause”.

An average clause will apply where the sum insured figure is lower than the true re-build cost the average clause. The effect of this is can be to reduce the level of any claim by the percentage by which the sum insured figure is less than the true cost.

Taking a simple example by way of illustration:

Let’s say your actual rebuild cost is £250,000 but you’re paying premiums based on a £187,500 rebuild.  That’s 25% under what is required.  Let’s take the occurrence of storm damage where roof tiles come away, rainwater gets in and then ceiling, walls and carpets are all affected.  You get quotes for all the work and you’re looking at a total of £5,000 for everything.

The loss adjusters make a visit to assess the claim.  They agree with the work required, they agree with the £5,000 cost but they don’t agree with your insured value. Where an averages clause applies, the insurers could look to reduce the claim by 25% (the difference of the underpayment).  So your shortfall is £1,250 plus any excess provided for in the policy.

Waymark undertake valuations of both residential and commercial properties to establish a correct sum insured figures. These valuations are known as Reinstatement Cost Assessments (RCA’s).

An RCA is fundamentally different from a marketing valuation which seeks to establish the value of your home if sold.

The RCA is assessing the cost of rebuilding your home and takes into consideration:

  1. Current construction costs including labour and materials - These are typically only ever going to go up and there is now additional pressure on the economy and value of the pound since the Brexit vote.
  2. Age and construction type of your property - Age tends to be a key factor, certainly when it comes to a like for like replacement of a property.  Listed buildings, thatch or unusual architectural features all add to the cost of rebuilding.
  3. Specific constraints or restrictions - That quiet country lane maybe great for you but it could add to the building cost if it prevents construction traffic needing to get access to your property.
  4. Demolition costs and professional fees – these need to be included to the re-building cost as forming part of the overall cost of any works.

Changes in the cost of construction do not rise in line with the more generally known retail price index which can be seen in the following:

Building Cost Index:              + 1.4%*

Mechanical Cost Index:          + 2.2%

Electrical Cost Index:             + 2.2%

Consumer Price Index:           + 0.4%

The labour market statistics show a similar upward trend with an annual increase on a month by month basis of 7% with construction industry pay continuing to exceed average earnings.

(All these figures are for changes over the last 12 month period)

When preparing RCA’s we always inspect your property and undertake a measuring survey. Back in the office we will assess the various re-build costs and then issue our Report.

The cost for our reports start at £60 including VAT.

For further details on how Waymark can help, contact Ed Preece MRICS at ep@waymarkproperty.co.uk or phone the office on 01367 820070


Waymark are Chartered Surveyors, Estate Agents and Commercial Property Consultants. Our Residential Sales and Lettings team specialise in the regions of South West Oxfordshire, North Wiltshire and South Cotswolds including the towns of Wantage, Faringdon and Lechlade and the surrounding villages.Our Commercial, Residential Land and Planning & Development work covers this region and further afield.

Led by RICS qualified surveyors and registered valuers, the team at Waymark have many years of combined property experience and local knowledge.


*Percentage change year on year, 2015 Q2 to 2016 Q2.

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