How much building insurance do I need?

How much building insurance do I need?

You’ll want to have enough insurance to cover your home if anything should happen to it, but just how much home insurance is enough? For some insurance providers, the monetary amount might not be so important — some providers will just use a general figure based on how many bedrooms your home has and work from there. But some providers might need a more detailed assessment of rebuild costs before they can give you a home insurance estimate or quote.

How much should you insure your house for?

It's difficult to put a monetary value on sentimentality, but you can cover the financial value of your home. The value of your property depends on your own individual situation, but here’s some things to bear in mind when figuring it out.

A home has a ‘sum insured’ value which refers to insuring the full value of the property, including the house rebuild cost. The sum insured value is determined by the insurer or Association of British Insurers (ABI) and is what the insurer would be able to cover. It’s important that when taking out a policy your cover levels are greater that this number, to make sure you’re not underinsured.

But how do you calculate this rebuild cost and the full value?

Calculating rebuild costs

How much does it cost to rebuild a home? More than the current market value of the property, or less? In most cases, it's going to be less. When you sell your property on the market, you're also selling the land it is built on. This land tends to be valuable all by itself, so you can this amount as you calculate the rebuild cost.

But how do you find out the specific rebuild cost for insurance purposes? How much would it cost to rebuild your specific house?

An easy way to find out is to check your mortgage application. This might include a breakdown of different costs, including a calculation of the rebuild costs. You'll have the data right there in front of you, and you can use this to plan your insurance requirements.

However, rebuild costs can vary widely. Here are a few things to bear in mind when calculating rebuilding costs:

• If your property is classed as 'non-standard construction', which might increase the cost of a rebuild.
• If you’ve made improvements or modifications to your property since your mortgage application, the rebuild cost may be higher than quoted.
• If it's been a long time since you applied for a mortgage, the rebuild costs may have increased because of increases in the cost of labour and materials.

Rebuild cost assessment

So, what happens if you believe your rebuild valuation is out of date? You'll simply need to get a new rebuild cost assessment. It’s not generally too much trouble, and the Association of British Insurers (ABI) have a building insurance cost calculator for UK homes, which includes the rebuild costs of homes across the country.

What happens if you're underinsured?

What happens if you’ve underestimated the amount of insurance you need? While needing a complete home rebuild is thankfully rare, this is still something to think about.

If you're underinsured, it means you don't have enough insurance to cover the full cost of rebuilding your property. So, when the rebuilding project takes place, you may find that your insurance provider can only cover part of it. The rest of the cost will need to be covered by you.

There’s also a thing called the ‘average clause’ which basically means that when going to make a claim and your insurance provider finds you’re underinsured, then they can reduce their payout to you when you claim.

A few final tips...

• It’s probably a good idea to review your buildings sum insured and make sure you have this full amount of cover.
• You can find out the full rebuild cost by checking a recent mortgage application, as it should have a rebuild estimate figure included.
• Your rebuild cost will change over time, even if you haven't added any modifications to your property — and the Association of British Insurers can help you calculate this.

Urban Jungle is not a financial advisor and information in this article should not be taken as advice or recommendation.