Reinstatement Cost vs Market Value
The reinstatement cost comprises demolition and site clearance + professional fees (10�15% of build cost) + rebuild to current Building Regulations standard + VAT. Market value includes the land (which cannot be destroyed) and fluctuates with supply and demand. In high-land-value areas, market value can be double the reinstatement cost. In some areas, reinstatement cost exceeds market value � particularly for listed or non-standard buildings.
Under-Insurance and the Averaging Clause
Most landlord buildings policies contain an averaging clause. If the sum insured at the time of a loss is less than the actual reinstatement cost, the insurer pays only the same proportion of the claim: (sum insured � actual reinstatement cost) � claim amount. Example: sum insured �300k on �400k rebuild (75%) � a �100k claim pays only �75k. Applies to partial losses, not just total loss.
BCIS House Rebuilding Cost Index
The BCIS (Building Cost Information Service) free online rebuild cost calculator gives a rebuild estimate for standard residential properties. Updated annually; check at each renewal. Limitations: calibrated for standard construction; understates cost for listed buildings, large properties, or non-standard construction.
RICS Reinstatement Cost Assessment
For listed, non-standard, or complex properties, a formal RICS Reinstatement Cost Assessment (RCA) is recommended. Cost: �300��600 standard residential; �800��2,000+ for listed or complex properties. RICS recommends updating every 3 years; reviewing against BCIS annually.
Day One Reinstatement and Index-Linking
Day One Reinstatement: insurer agrees to pay actual rebuild cost at the date of loss, up to an agreed percentage uplift (typically 50%) above the declared sum � removes averaging risk for the policy year. Index-linking automatically adjusts the sum insured annually in line with the BCIS index.