If you had to rebuild your home, would your insurer pay you the right amount?

Recent research¹ has highlighted that many properties are covered for just 68% of their rebuild value. With the recent hike in inflation, are you confident that your home is insured to the correct level?

The cost of building materials over the past two years has, if you excuse the pun, gone through the roof. The finger of blame could be pointed at Brexit, Covid, or supply issues in general but the combination of all of these factors, along with a healthy dose of inflation has sent construction costs soaring². The knock-on effect of this can alter the value of your home and how much it would cost to rebuild it brick by brick. There are two values to your home, market value being one, and the cost of re-building your home being number two, though it isn’t second place in importance.

When it comes to insuring your home, your insurance provider needs to know how much it would cost to re-build your property, not how much your local estate agent believes it to be worth on the open market. If the worst happened, and your home was damaged by fire or flood for example, having an up-to-date re-build assessment³ of your home will ensure that you are not one of those properties who can only afford to rebuild 68% of their house.

What type of insurance cover do you have?

There are choices to be made when securing the insurance cover for your home, and some of the options available to you do take inflation into account. When renewing your policy it is worth discussing all options to see which fits best with your approach to risk.

Blanket Sum insured vs Specific Sum insured

If you have opted for a blanket sums cover you and your insurer are likely to have cautiously over-valued the rebuild cost of your home. By doing this you allow yourself breathing room for inflation and market fluctuations. Even still, your policy is still likely to cost more at renewal because the insurer will be calculating the increasing costs of potential repairs behind the scenes (and will therefore adjust their rates accordingly)

If you have insured your home with a specified sum then you will need to be proactive in keeping your rebuild value up-to-date. Your insurance policy will automatically be index-linked at the time of your renewal. (The insurer will be lead by the Building Cost Information Service ( BCIS)⁴ and will apply an average increase to the value of your potential rebuild costs.) Please do be aware that if your home is not like any other home it may cost more to rebuild so the BCIS figure may not be so generous in its estimate.

1. https://www.rebuildcostassessment.com/single-post/underinsurance-made-worse-by-rising-construction-costs
2. https://www.architectsjournal.co.uk/news/material-costs-surge-23-in-a-year-government-data-shows#:~:text=The%20cost%20of%20construction%20materials,and%20Industrial%20Strategy%20(BEIS).
3. https://www.rebuildcostassessment.com/
4. https://www.rics.org/uk/products/data-products/bcis-construction/

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