Property insurance against damage to a building should cover the full cost of repair or reinstatement following damage by fire, storm, flood or other hazard.
Some historic buildings, such as listed buildings or buildings in a Conservation Area, are protected by special legislation and reinstatement following damage may be required by law to be carried out using traditional materials and techniques in order to maintain the special character and appearance of the building. This may be more expensive than using modern techniques so it is important that your building is adequately insured to cover these higher costs.
There are various bases on which property insurance can be taken out but, unless you are prepared to meet part of the cost of any insurance claim yourself, you should insure your building for the full rebuilding cost. This is defined as the total cost of reinstatement, following complete destruction, in accordance with current legislation and listed building requirements. It should also include the cost of temporary protection, demolition and clearance, professional fees and VAT.
If a building is insured for less than the total re-building value any claim towards repair or damage will normally be reduced proportionately, in a process known as ‘averaging’. For example, if your building is insured for 70% of its rebuilding value the insurance payment towards repair of a fire damaged roof or a wind damaged chimney would be at a rate of 70% of the cost and you would have to pay the remaining 30% yourself.
The rebuilding value of a property is not the same as its market value, which may vary according to such factors as its location or the size of the garden. The market value of the property should not be used as a basis for calculating insurance cover.
Most insurance companies issue guidance notes of average rebuilding costs per square metre for different types of dwelling such as bungalow, older style terraced house or modern detached house. This enables you to calculate the approximate rebuilding cost for your type of building based on its total floor area. However, the average prices quoted assume reinstatement using modern materials and methods and are not realistic for calculating the cost of traditional repairs to historic buildings, particularly thatched buildings.
When considering a proposal for insurance cover most insurance companies do not even enquire if the building is listed so it is up to the owner, to make sure that the value for which the building is insured is a realistic estimate of its rebuilding cost. Some insurance companies and brokers specialise in insuring period and thatched properties and will be able to help you in arriving at a realistic figure for the rebuilding costs. In many cases the only way to arrive at an accurate value for reinstatement costs is to commission a Rebuilding Cost Assessment from a chartered surveyor and use this as the basis for the insurance. The owner will probably have to pay for the assessment themselves, since few insurance companies send out their own surveyors to undertake valuations, and insurance premiums may well go up as a result of commissioning an accurate assessment, but being properly insured may save thousands of pounds in the event of damage.
The Rebuilding Cost Assessment should be reviewed and updated approximately every five years since, even if insurance premiums are index-linked, the rate of increase may differ from the actual increase in building costs. The property owner should also tell the insurance company if improvements are carried out to the building, such as constructing an extension or installing central heating, as this will affect the rebuilding value.