The cost of rebuilding a property is an important and often required factor in the calculation of your building insurance – and it's something that landlords often struggle to get right, leading to either unnecessary premium payments or inadequate insurance settlements.
Here are a few basic tips to help you arrive at a rebuild cost that can cover the worst-case scenarios, without putting undue strain on your overheads.
The rebuild cost does not equal the value of your property
The market value of your property is a combination of the value of the physical home and the land on which it lies. Physically indistinguishable properties in London and Manchester could have the same rebuild cost, while their actual market values would likely be worlds apart.
Essentially, the rebuild cost is an estimation of the price of demolishing an irreparable property and constructing a similar one in the same location. While the market value of a property includes the land on which it's built, the rebuild cost is basically an estimation of materials and labour.
Even when separating the cost of the land from the cost of constructing an identical property, remember that there are also the costs of safely removing the remains of the destroyed old building, as well as any architect's fees and any additional planning costs associated with the new construction.
Your insurance provider will need to know the cost of reconstruction
Providing a rebuild cost is usually an inescapable part of securing a landlords building insurance : buy-to-let providers will usually need to know an estimated figure when you apply for or renew your policy.
If you bought your property recently, it's likely that the rebuild cost will have been included along with your other documents. If not, you'll probably be required to provide one – and it's important to get an accurate figure. If the estimation you provide is lower than the reality of reconstructing your property, then the payment from your insurance claim may not fully cover the cost of reconstruction.
Conversely, if the assessed cost of rebuilding is higher than the actual price of rebuilding, then you may pay more in insurance premiums than you need to.
That's why it's probably worthwhile to get an accurate assessment.
Find a figure you can rely on
While you can take measurements of your property yourself, and submit its age and type to an online calculator, you might not arrive at an insurable sum that's representative of your property.
It might be more prudent to hire a professional surveyor – spending a few hundred pounds on an expert's assessment could save you thousands of pounds when it comes to the reconstruction of an under-valued property.
Rebuild costs aren't set in stone
At the very least, the rebuild cost of your property should rise according to inflation. Some insurers will automatically "index link" the cost, while some will require regular re-assessments conducted by you to keep policies up to date.
Just like any other type of insurance, it's worth reviewing your policy after any significant changes to your property, such as an attic conversion or a refurbished kitchen. Your investment is bound to evolve as the years go by. And if disaster should strike, an out-dated valuation could mean a disappointing settlement – and a more challenging recovery.