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How to calculate buildings insurance rebuild cost
We constantly stress the importance that property owners ensure they choose second home insurance that gives maximum cover with minimal exclusions, rather than deciding based on price.
However, it is essential that the holiday home buildings sum insured you declare is accurate, to avoid claim payments being reduced because of under-insurance.
Your holiday home buildings sum insured should represent the amount that it would cost to rebuild your home if it burnt to the ground or was destroyed by an earthquake for example. The rebuild amount should include the cost of removing debris, architects and surveyors fees.
It’s important that you only insure for the rebuild value, not the market value (how much you would get if you sold) as the land is already yours. Remember it’s your responsibility to get the sum insured right.
If you are unsure of what are buildings, see our previous post for advice on what buildings insurance covers.
How to calculate holiday home buildings sum insured
If you had a survey done on your holiday home when you purchased, it (or your mortgage agreement) should indicate “minimum reinstatement costs” or “rebuild value” for insurance purposes. This figure should be a useful guideline for the sum insured.
Alternatively, there are two main ways to find your holiday homes rebuild cost: hire a surveyor or use a rebuild calculator.
Hire a Surveyor
For UK homes, the best way to get an accurate rebuild cost is to instruct a chartered surveyor (who is a member of the Royal Institution of Chartered Surveyors) to prepare a professional rebuilding cost assessment for buildings insurance purposes. This should cost around £200.
The RICS web site can be used to search for a Chartered Surveyor in your area.
If your holiday home is overseas, your lawyer should be able to advise on where to locate a qualified surveyor.
Use a Rebuild Calculator
The second option is to use The Association of British Insurers buildings rebuild cost calculator to help you assess the rebuilding cost of your property. To use the calculator you’ll need to measure your second homes external floor area for both upstairs and downstairs. After entering this information the calculator will produce an approximate rebuild cost.
Although free to use (registration required), the problem here is that you only get a rough idea of your holiday homes rebuild cost. If in doubt, instruct a professional surveyor to prepare a rebuilding cost assessment for insurance purposes.
Keeping your buildings sum insured up to date
Check if your insurer ‘index links’ your policy. This means that your buildings sum insured is altered automatically in line with fluctuations in rebuild costs. Usually this is done each year at renewal.
If they don’t and the rebuild cost increases without your buildings insurance sum insured increasing to match, you could end up underinsured. It’s important to note that index linking only works properly if your sum insured was correct at outset.
Also, periodically check that your buildings insurance amount still reflects the actual rebuild cost. It is likely that it will need to be increased to reflect any improvements that you make to your holiday home – an extension or new kitchen for example.
Don’t under-insure
Under-insuring a holiday home, whether deliberately to reduce the premium or by negligence, could mean the insurer will reduce claims payment by the percentage that your property is underinsured by.
For example, if the actual rebuild cost is £200,000 but you are only insured for £150,000 – you are underinsured by 25%. Therefore any claim you then make under the buildings section could be reduced by 25% depending on the insurer.
Likewise, don’t over-insure.
Your holiday home is a large financial investment which could be at risk if you do not calculate the correct rebuilding cost for insurance purposes. Although using a rebuild calculator is a useful guideline, it’s an estimate.
For peace of mind instruct a professional Surveyor to prepare a Rebuilding Cost Assessment for insurance purposes.
