Cheap Insurance Could Cost You More

In recent years, the UK has seen significant fluctuations in property rebuilding costs, largely driven by soaring material prices, as well as updates to building regulations in 2022. While increases have stabilised in recent times, it remains vital for property owners to make certain their insurance cover reflects current rebuild costs. Failure to do so can result in underinsurance, potentially leaving owners exposed to substantial financial losses, especially in the event of a total loss.

This concern is even more pronounced for listed properties. These buildings are often subject to legal obligations requiring repairs or restoration to their original state, typically using traditional materials and specialist techniques. As a result, rebuild costs for listed properties are usually significantly higher than for other buildings that can be reinstated using modern materials.

If a property is underinsured, insurers commonly apply the "average clause," reducing the claim payout in proportion to the level of underinsurance. For instance, if a property is deemed to be insured for only 80% of its true rebuild value, the insurer may only offer settlement for 80% of your claim. In the case of a £150,000 claim, this would result in a payout of just £120,000, with the remaining £30,000 falling to the party responsible for insuring the property.

Although insurers apply annual index linking to adjust sums insured in line with inflation, these increases do not always maintain full insurance cover. This is particularly relevant given that the House Rebuilding Cost Index rose by 40% between January 2020 and January 2024.

Insurance premiums are directly tied to the sum insured, so increasing this amount will likely lead to higher premiums. However, ensuring the correct level of cover is essential to avoid the financial risks of underinsurance or the unnecessary cost of over insurance. To determine the accurate rebuild value of a property, it is strongly advised to consider a professional rebuild cost assessment to be undertaken a chartered surveyor.

To maintain adequate cover, it is recommended that the sum insured on an insurance policy is to be reviewed frequently, and at least every five years, reflecting any changes in rebuild costs or regulations.