When taking out a landlord insurance policy, your insurer will need to know the rebuild value of the property to be insured.
Put simply, the rebuild cost of your rental property is the amount it would cost to rebuild it from scratch were it destroyed completely. The figure should include the cost of materials and labour, as well fees for other professionals involved, such as architects and surveyors.
“Accurately calculating your rebuild value helps the insurer find the right cover for your property at the optimum price for you,” says Steve Verrall, managing director of Discount Landlord.
It is important to note that the rebuild cost of your property is not the same as the property’s market value or your council tax band valuation. Because the market valueadds a premium on top of the construction price and includes the land on which the property sits, it is usually higher than the rebuild value, as when a property is destroyed the land itself is usually unaffected.
Discount Landlord recently dealt with a case where the property had been destroyed in a fire. The owner had calculated its rebuild value to be £100,000, yet the value of rebuilding the property was actually estimated to be £144,310.
“We see a disproportionate amount of rebuild values calculated as neat figures such £100,000, £150,000 and £200,000, and whilst the temptation is to round figures up or down, it is important that the amount is as accurate as possible,” explains Verrall.
As the property owner, the onus is on you to get the rebuild value figure correct as it will affect the level of insurance needed and the premium you pay. If the figure is calculated too low then you may be underinsured. This means you may have to make up the shortfall if your property needs to be rebuilt, although some insurers allow up to 15% leeway.
If the rebuild value is found to be less than 50% of that needed to reconstruct the property then the policy may be void in the event of a claim. Conversely, if the rebuild value is calculated too high, then you could end up paying more than you need to for your policy.
It is also important to understand that knowingly underestimating the rebuild value of your property, either to be eligible for a certain policy, or receive a lower premium, is treated as fraud and is a criminal offence.
You can use an online calculator, such as the one here: http://calculator.bcis.co.uk/ to calculate your rebuild costs.
Alternatively, you can hire a professional chartered surveyor to assist you. Visit www.rics.org for more information.
It is important that you also review you rebuild value on a regular basis to ensure that you always have the correct level of cover for your property. Making changes to your property, such as adding an extension, could increase the rebuild value.
“We’ve had customers who have listed the rebuild value of their property as the same figure for the last ten years, however, there are many factors, such as the changing costs of materials and labour that could have affected the figure during this period. Some insurers, including Discount Landlord, index link the Building Sum Insured to keep this figure inline with inflation,” explains Verrall.