Whether you own a house, an office, or an industrial unit, having the right property insurance in place is essential. But are you insuring your property for its market value, or for what it would actually cost to rebuild?
The two are not the same – and confusing them can leave you significantly underinsured.
Market value vs. Rebuild cost
Market value is what someone might pay for your property if it were for sale. It includes the land, location, and demand – not just the structure. The rebuild cost however, is the amount it would cost to completely rebuild your property after a major incident such as a fire, flood, or structural collapse. This includes demolition, debris removal, materials, labour, and professional fees like architects and surveyors. This handy video from RebuildCostASSESSMENT helps further explain.
With extreme weather events on the rise, accurate insurance is more important than ever. The Association of British Insurers (ABI) reported over £226 million in storm-related property claims following Storms Dudley, Eunice, and Franklin in 2022.
Meanwhile, rising construction costs are compounding the risk. The Office for National Statistics (ONS) reported that building materials inflation peaked at over 24% in 2022, significantly increasing rebuild costs.
Underinsurance is widespread
Did you know that up to six million UK homes may be underinsured, often because cover is based on market value, not rebuild cost (source: ABI). And this isn’t just a residential issue – a 2024 report by RebuildCostASSESSMENT.com found that 79% of UK commercial properties were underinsured, with the average shortfall in cover reaching 63%.
If your rebuild cost is underestimated, insurers may apply the “average clause” This can reduce your claim payout proportionally, leaving you to cover the shortfall, which can be financially devastating after a major event.
Overinsurance can also cost you
It’s not just underinsurance that can cause issues. If your property is overinsured, for example, by using a higher market value, your premiums may be unnecessarily high. You won’t receive a larger payout in the event of a claim, so it’s money wasted. That’s why getting an accurate rebuild cost is so important as it helps ensure your cover is appropriate and cost-effective.
What can you do?
The most accurate way is to request a rebuild cost assessment. These can be done via a desktop assessment, or an in-depth on-site inspection by a RICS-registered surveyor for more detailed projects. These assessments consider aspects such as your property type; materials, debris removal; professional and regulation fees i.e. building regulations, architects, consulting engineers and surveyors; and location, to determine the true reinstatement value.
Whether you’re insuring a home or a commercial building, speaking with your insurance adviser and arranging a rebuild assessment is a smart way to protect your property and your finances.
Julie Rayson-Lee, GCGI CertCII
Placement Director
