Lack of knowledge leaves owners at significant risk

You’ve worked hard, you’ve bought your dream home and you’re doing the right thing by paying for buildings insurance. But there’s a lack of knowledge in the market which can leave you drastically out of pocket.  As your broker we wanted to keep you in the loop and draw your attention to the often overlooked world of ‘Buildings Sums Insured’.

Buildings Sums Insured. What is it and why do you need to review it?

This is the insurance world’s way of referring to the total cost of rebuilding your home from scratch. It would also include the price of any professional costs and fees – from site clearance and the planning stage to the placing of the last tile on the roof. (No one likes to think of their home going through a complete re-build, but with over 3000 fires* devastating UK homes each month it is unfortunately something of which to be made aware.)

Re-building your building

You may think that your buildings insurance covers you for this – yes, technically it does BUT only if your ‘Buildings Sum Insured’ is sufficient. What is the current cost of re-building your home and any outbuildings you may have? When was this last checked by a professional?

We all know that home values fluctuate with the rise and fall of the property market but beware – the re-build cost of your home isn’t based on this. The cost of re-building goes deeper; a simple example would be to look at the home improvements you have made. Installed a new bespoke oak kitchen? Or perhaps a luxurious bathroom? These cost money to install and invariably can increase the cost to rebuild your home, particularly if they’re an upgrade on the previous fixtures.

Even if you haven’t made alterations to your property, the actual cost of re-building will rise over the years simply due to the increasing cost of materials and labour. Plus there are all the additional and potentially new costs which come with it. Chartered Surveyor, James Scott Brown says “Your builder may charge you £200 a day, but if you live in London for example you need to consider their congestion charge, their parking fees and permits and so forth. Suddenly £200 a day becomes £300 a day and this all adds to the re-build costs”.

To be clear, the ‘Buildings Sum Insured’ is NOT the market value of your home.

The market value of your home can fluctuate depending on many external factors, land value being one of the most significant influences. The re-build cost of your home is entirely different however. Land value plays no part for example. It is based on the total sum of all the labour, materials, fees and expertise needed to reinstate it to the same standard.

Remember, if your home is listed, it will involve the instruction of specialist craftsmen. They will need to source particular materials to re-create the historical essence of your home, not to mention the lengthy planning application stages and the possible temporary accommodation costs for you whilst the works take place.

Be wary of misplaced confidence

It isn’t uncommon for homeowners to make an overly conservative estimate at their ‘Buildings Sum Insured’ figure, not wanting to go higher due to fear of the resulting cost of their premium. In cases such as this, the confidence to do so often stems from the belief that it is extremely unlikely your property will ever be damaged sufficiently to need complete reinstatement. This can be extremely risky. A major incident such as a fire can happen to anyone and if there is sufficient damage to doubt the integrity of the remaining structure, then it could very easily lead to demolition. Perhaps more relevant however is the presence in many insurance contracts of an ‘average’ or ‘underinsurance’ clause, which could result in a claim settlement of any value being reduced or declined if your overall ‘buildings sum insured’ is deemed too low – even if the incident is only a minor one!

What about index-linking?

It is not feasible, and not always necessary, for homeowners to have their property surveyed every year when their insurance is due for renewal. Index-linking is used by insurers to try and take into account possible increases in your property’s rebuild cost; e.g. if the cost of brick increases. While this is useful, it isn’t fool-proof. “Many policies are index-linked but we advise not relying on this. We recommend a re-build re-assessment every 3-5 years.” says James Scott Brown.

If you’ve been relying on your insurance being index-linked and have been doing so for many years, it may be time to review your cover more closely.

So what can you do to avoid an astronomical and life changing bill?

James Scott Brown from SBRMS (Risk Management Surveyors) says “Don’t rely on the online calculators from the Association of British Insurers or Building Cost Information Service. The small print says they can only offer you a guide price and they can’t explain the limitations. With high value homes in particular it is imperative to get another opinion. In my experience, 40%** of household properties are under-insured and in turn they are normally covered for less than 70% of their correct re-build cost.”

The advice? Seek professional assistance. There are various options available on the market now, including ‘desktop appraisals’ that can be used for straightforward cases, as well as a traditional site visit survey for properties that require a more in-depth assessment. Costs naturally vary across these options, but James and his team kindly offer their services at a discounted rate to clients of Lloyd & Whyte – it may even be possible that we can have your insurer agree to arrange and fund this for you.

Let us help

If you have any doubts as to the suitability of your existing buildings sums insured, please give us a call. We can review your cover and discuss the options available to re-assess the re-build cost of your property. We’ll provide the knowledge and guidance to help ensure your biggest asset and more importantly your home, are properly protected.

Lloyd & Whyte. What matters to you, matters to us.

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*https://www.gov.uk/government/collections/fire-statistics

**James Scott Brown, Scott Brown Risk Management Services – 2020