Market Value vs Building Insurance Value
Q. There seems to be quite a discrepancy between the market
value of my home and its insured value, and I’m concerned
that I may not have adequate cover.
A. The market value of a property, and the value that is put on
it for insurance purposes, are two very different things. Market
value obviously reflects the price someone is prepared to pay for
your home – which, as we all know, can go up, down or
sideways, depending on a whole range of external factors. On the
other hand, insured value is based on a calculation of what it
would actually cost to completely rebuild your home to the same
specification in the event of something like a major fire. Even in
the current market, the former is almost always higher –
primarily because the insured value doesn’t take into account
the value of the land on which a property sits.
So, that’s where the discrepancy comes from – and in
itself, it needn’t be a cause for concern.
However, whether or not the insured value is actually correct is
another matter altogether. Generally speaking, insurance companies
increase their valuations annually in line with inflation –
but that won’t necessarily reflect the true cost of labour
and materials at any given time. Besides, they may have got their
sums wrong in the first place. Then again, you may have
significantly extended or improved your home over the years, and
unless you make a point of telling your insurers, they won’t
have taken that into account.
As a general rule, I would advise you to check the insured value
every 2-3 years. You can calculate this yourself by multiplying the
total external size of your home (both upstairs and downstairs) by
the estimated rebuilding cost per square foot or square metre,
which can vary quite considerably, depending on where you live and
the type of property you live in. These costs are published by the
Royal Institute of Chartered Surveyors, and are available –
at a price - from most qualified surveyors. Alternatively, you can
check out the Association of British Insurers’ free online
building insurance calculator.
Once you’ve done your calculations, compare the result
with the insurer’s valuation, and if you’re not happy,
ask them to make the necessary adjustment. It might mean you pay a
slightly higher premium, but it’s a small price to pay for
peace of mind.