While it may seem more cost effective and therefore more attractive to base the sum insured for Home insurance on the market value of your house, this can be a high-risk move. Quite often, it seems appropriate to use the market value for insurance purposes, as it is easy to assume the market value is higher than the rebuild, which is true most of the time for non-listed properties, but not for listed buildings. Of the properties that we see, the rebuild is almost always higher, the potential exception being London properties, where occasionally, the purchase price will be higher or similar to the rebuild cost.
If you are deemed to be underinsured by your insurer and you need to make a home insurance claim, you may find you only receive a partial pay out; at worst your policy could be null and void. Many insurers include an ‘Average’ clause within their policies, which can apply to any claim; if you are underinsured by 20% for example, and you claim for a water leak costing £30k, you are only going to receive £24k after the average clause is applied.
What is a Reinstatement Cost Assessment?
A Reinstatement Cost Assessment is an evaluation of how much it would cost to rebuild your property following total loss (for example, destruction following a fire), or such extensive damage that the building(s) would need to be demolished and rebuilt.
After an assessment of the property, the surveyor will confirm the rebuild cost of your property, including key factors such as:
- Materials and labour costs
- Demolition fees and debris removal
- Professional fees (architects, surveyors and planning applications)
- VAT where applicable
The final figure is the value of the rebuild and is what your sum insured must be based on.
How often do you need a Reinstatement Cost Assessment?
On the recommendation of Chartered Building Consultants, BCH, and based on best practice guidelines from the Royal Institute of Chartered Surveyors (RICS), you need to complete a major review of your listed property insurance valuation three years after your initial Reinstatement Cost Assessment.1 Remaining vigilant around regular evaluations means your home insurance coverage can remain at the right level, with no nasty surprises should you need to make a claim.
Rising cost of rebuilds
Factoring in inflation and the increasing cost of specialist building materials such as stone, lead, thatching, and certain types of timber, a thorough Reinstatement Cost Assessment is crucial. There is also specialist, skilled labour to consider such as heritage craftspeople: stonemasons, thatchers (if your property is listed and thatched), specialists in lime mortar pointing and plastering, bespoke joinery experts for windows and timber framed constructions, and metalworkers for restoring wrought iron gates and intricate metalwork. With conservation contractors and builders in high demand across the UK, labour rates are being pushed up all the time.
Can you rely on a mortgage lender survey?
A mortgage lender survey is based on your property’s market value and lending risk, but rarely do they account for a full rebuild valuation and if they do, they are usually inaccurate and much too low. If you base your sum insured on your mortgage survey you could run a significant risk of being underinsured. A lender’s survey often adopts a generic ‘tick box’ approach to check the property is worth the mortgage loan amount. Lenders’ surveys and some Desktop Valuations done remotely can sometimes fail to identify issues such as structural damage, damp, or rot which can lead to issues at a later date.
Listed buildings often cost far more to rebuild and repair than standard-construction properties. While a mortgage lender survey might be appropriate for a non-listed, more modern house, obtaining a professional rebuild value from a company specialising in Rebuild Cost Assessments is strongly recommended because, aside from the potential application of ‘Average’, if you are underinsured your insurer will only pay up to the sum stated on your policy document, potentially leaving you with a substantial bill for the deficit.
Zoe Davenport, from BCH, who provide buildings insurance valuations for historic and listed buildings across the UK, offered her expertise on the use of mortgage valuations for insurance purposes.
“During the purchase of a property, it’s not unusual for there to be reports commissioned containing an assortment of costs relating to the property. It’s pertinent to note the following:
There is no correlation between market value and reinstatement cost. The market cost should not be used to set cover.
Neither the estimated equity nor outstanding loan balance are the buildings reinstatement cost. These will be insufficient to set cover.
In instances where a sum insured is provided by, for example, a mortgage surveyor, we would encourage policy holders to ensure that this the provider carries appropriate Professional Indemnity Insurance in the event that this information is incorrect. These figures can be used as guidance and can be a reflection of average construction rates rather than a specified sum that considers the building individually, accounting for all finishes and fittings. It is becoming increasingly common that people will apply their perception of the market value to base their home insurance on”
How to accurately insure a listed building
When a professional surveyor or rebuild cost assessor provides you with an accurate rebuild cost for home insurance purposes, they will have considered a range of aspects. The first one is to evaluate how much it would cost to rebuild or reinstate your building on a like for like basis.
Listed buildings are renowned for being unique and having uncommon features. A grand staircase or leaded windows, intricate cornicing and ceiling roses, sash windows and elaborate fireplaces can all be an integral part of a listed property. Even gardens can contain ornate stonework, and outbuildings (curtilage listed buildings) can often fall under the ‘listed status’ of your property.
Listed building regulations will usually require you to rebuild your listed property in line with the original structure and features. This is why your sum insured needs to be a figure that accurately reflects reinstatement of your buildings on a like for like basis.
How we can help you insure your listed home
Trying to insure your property online or with a standard home insurer may leave significant gaps in your cover because although many big online insurers may have a good understanding of listed properties, their insurance products just don’t usually fit the specific needs or carry the right breadth of benefit levels. It is also left up to the client to navigate the product wording, work out whether they are setting up the policy correctly, and whether the cover meets all requirements with no advice or support around these aspects.
We can potentially help with arranging a Reinstatement Cost Assessment as part of your insurance quote offer and some insurers conduct them on every property as standard. Or we can introduce you, as our client to Reinstatement Cost Assessment companies who should be able to give you a discount as a Lloyd & Whyte Private Client customer (at least on a Desktop Valuation). Having a valuation in place is extremely helpful for us as your broker but contact us regardless and we’ll be able to help.
If you need any assistance regarding your Listed Home Insurance, we are on standby to assist. As part of the process, we can discuss the sums insured with you and how you might be able to get them checked
For new Home Insurance enquiries call: 01823 761085 or email miles.brown@lloydwhyte.com
Book an Appointment: https://outlook.office365.com/book/PrivateClient@lloydandwhytegroup.com/?RefID=PrivateClientWeb
If you would like to discuss an existing policy that you already have with us, please get in touch using the details below:
Call: 01823 250594
Email: privateclient@lloydwhyte.com
