What is building sum insured?

What does building sum insured mean? Rebuild cost vs market value

 Building sum insured is the cost of rebuilding the property if it was completely destroyed. Commonly people insure their property at the retail market value which is what they would get if they sold their property. Building sum insured refers to the maximum amount that an insurance company will pay out for an insurance claim related to material damage or loss of a building.

It is also often called the "rebuild cost." This value is intended to cover the total cost of rebuilding the property from scratch, in the event of a complete loss, like after a fire or a natural disaster. This includes the costs of clearing the site, professional fees, and the actual construction.

Wrong building sum insured can lead to Underinsurance

Building sums insured can lead to Underinsurance when your property is insured for less than its true value. It is a common occurrence since most policyholders do not have accurate knowledge about the total value of their property.

Read More About Underinsurance

How to calculate building sum insured

There is an easy way to calculate building sum insured to assist when you are renewing or updating insurance policy. Your building sum insured must include all costs to fully demolish and the rebuild value for the property in full, including all ancillary costs.

The Association of British Insurers (ABI) and the Building Cost Information Service (BCIS) provide a building sum insured calculator on their websites to help homeowners estimate the rebuild value of their property. However, it's worth noting that this tool is a general guideline and cannot take into account the specific characteristics of every individual property. It might not be accurate for properties that are unusual in some way, such as listed buildings.

What to look out for when using the rebuilding cost calculator:

• Calculating Rebuilding Costs: The primary component of the building sum insured is the cost to rebuild the property. This can be calculated based on the size, location, and type of property. The most accurate way to calculate this is by hiring a professional surveyor who can assess your property and provide an accurate rebuilding cost.
• Demolition and Site Clearance Costs: If your property is damaged beyond repair, it may need to be demolished and the site cleared before rebuilding can begin. These costs should also be included in the building sum insured.
• Professional Fees: This includes fees for architects, surveyors, and any other professionals who might be involved in the rebuilding process.
• Other Costs: There might be other costs associated with rebuilding, such as meeting new building regulations, that should also be taken into account.

You must also include fees to comply with statutory and local authority requirements such as planning requirements and current building regulations. Remember that properties must be returned to current codes not as they were built originally.

What factors affect building sum insured?

Building sum insured is largely impacted by the cost of various material prices. We have all seen the increases in labour and materials over recent years so you should always include inflation costs to allow for an increase in building repair costs during the period of construction. Professional Fees for architects, surveyors and engineers are also included, and therefore have a significant impact.

Another factor that affects building sum insured is the type of property. For examples, the rebuild of a block of flats might include the whole building, and so it can be difficult to calculate an estimate.

Who is responsible for ensuring the building sum insured is correct?

It is your responsibility as the homeowner to ensure that the sum is the correct figure. With extreme weather becoming increasingly common in the UK, more homeowners are experiencing tragedies such as severe flooding and fires that require the property to be rebuilt. It is therefore imperative to ensure that your building sum insured is correct, to avoid being hit with underinsurance implications should the worst happen to your home.

If you do suffer tragedy in your home and need to make an insurance claim, give Oakleafe a call. As award-winning Loss Assessors, we can put you and your home on the road to recovery and ensure you get the most out of your claim.

Remember, it's important to review your building sum insured regularly, as building costs can change over time due to inflation and changes in building regulations. This will help you avoid being underinsured.