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Home cover: why recession means you’re overpaying

Row of houses on Portobello roadIf you’re about to take out or renew your buildings cover then an insurer will want to know what your property’s rebuild value is. If you don’t know, or are likely to hazard a guess, don’t; you could be making a costly mistake.

Making sure your property is covered against disaster striking is vital. But millions of homeowners could be paying too much in buildings insurance premiums after new figures showed that the cost of rebuilding homes in the UK has fallen dramatically since the downturn.

What is the rebuild cost?

Your home’s rebuild cost is the amount your insurer believes it will cost to rebuild your house it if falls down. So, if your property was devastated by fire, or flattened in an earthquake, the rebuild value is the amount your insurer would pay out in order to put a roof back over your head. It’s a question all insurers ask before you take out buildings insurance.

Rebuild cost vs. market value

A building survey will tell you what the rebuild value of your home is but many homeowners will assume it matches the market value of the property. The majority of the time, however, this is not the case.

Figures from the Building Cost Information Service (BCIS) show that the average rebuild cost in the UK has dropped by almost 4 per cent in the last year, which means homeowners could be over insured – paying too much as a result. Use a rebuild calculator to work out the cost of rebuilding your home.

Bricks and mortar

If your property is worth £150,000 for example, you might assume that it will cost just that to rebuild. However, the rebuild value is determined by the cost of simply reinstating the shell, which will often be less.

And generally speaking, the figures show that higher value properties have lower rebuild costs. This is because a greater proportion of their value is attached to the land they’re built on, or the area where they’re located rather than the materials used in their construction.

We looked at information from 1.4 million customers * to work out the average rebuild costs for properties valued between £100,000 and £500,000 in 2011.

A £500,000 property has an average rebuild cost of 47 per cent*. So you’d need to give your insurer a rebuild cost figure that’s less than half of the property’s value to cover the cost of replacing the structure if it fell down.

If you weren’t aware of this and assumed that the rebuild would match the half-a-million-pound market value, you’d be over insuring by more than double. 

But if you have a home worth between £150,000 and £199,000 the rebuild cost, on average, is 82 per cent* of the market value.

Although this might seem odd, based on an assumption that more expensive homes are bigger and therefore would involve a more expensive rebuild job, it’s important to remember that market value doesn’t necessarily mean a property is large in terms of square footage – which is what influences a rebuild cost.

Market value is influenced by external factors, so things like transport links, schools, affluence of an area.

The dangers of overinsuring your home

In the worst-case scenario your home insurance policy could be invalid if the information you give your insurer is wrong.

Alex Higgs,'s home insurance commercial analyst, said: “Any insurance policy is based on mutual disclosure between you and the insurer. To ensure your insurance policy is valid and up to date you need to be confident that what you’re telling your insurer is correct, to the best of your knowledge. The danger of guessing is that you get certain information so wrong that your insurer deems the policy to be invalid and refuses to pay out if you make a claim.”

The other problem of overinsuring is that you’ll be paying too much excess for cover you don’t need.

Simply put, insuring a four bedroom house worth £250,000 with a rebuild value of £250,000, the annual premium is £137**. But with a rebuild value of £124,000 the annual premium is £128***, a 7 per cent difference.

“It won’t break the bank but it’s worth bearing in mind. Homeowners should check the details in their building survey for the most accurate estimate of their property’s rebuild cost,” added Higgs. 

*Based on customer information, February 2011

**Based on a home insurance quote, February 2011

***Figures calculated during the quote process using the BCIS calculator, February 2011


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Lois Avery

Lois Avery

Lois joined in 2010 after working for Dyson and as a local newspaper reporter in Wiltshire. After a year writing financial journalism at, Lois won the 2011 'most promising newcomer' at the BIBA journalist of the year awards.

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