What is an insurance reinstatement value?

This is a question we get asked a lot and quite often it is confused with the market value of a property.

An insurance reinstatement value or an insurance reinstatement cost assessment is totally independent of the market value of a property. In summary the market value is how much the property will sell for on the open market.

To be more specific RICS define the market value as:

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

An insurance reinstatement valuation however is the cost of rebuilding the entire insured property/building in the event of a major event such as a fire. The cost valuation will include the cost of demolition, site clearance, professional fees and rebuilding of the property to the same type and standard as was.

So how does it compare to the market value?

There’s no correlation between market values and reinstatement values. In areas where capital values are weak it is common for the reinstatement value to be higher than the market value. In areas where capital values are strong, then the insurance reinstatement value will often be lower than the market value.

Why do I need to know the insurance reinstatement value?

When you insure a property, your insurer or broker will often ask you to declare the reinstatement value of the property, commonly the insurance premium is calculated based on this declared value. If the declared value is too high, you are likely to over pay for your insurance. If the value is too low your insurer may limit or even refuse to pay out in the event of a claim.

How can I find out the insurance reinstatement value of my property?

A useful and free online tool is provided by the RICS in conjunction with the Association of British Insurers (ABI). Annual usage is limited and the calculator is designed for homeowners looking to determine the reinstatement value of common types of owner-occupied residential property. For more unusual residential properties or for users requiring several valuations such as residential landlords please contact Joe Fraser to arrange an insurance reinstatement valuation and cost assessment. If you’ve booked a Level 2 HomeBuyers Survey and Valuation we’ll automatically include an insurance reinstatement value as part of your report. We also provide insurance reinstatement valuations and cost assessments for commercial properties of all types, please contact us for further information. We regularly carry out work for owner-occupiers and landlords and regularly come across properties that are either over or under-insured. We are aware of several rejected claims due to under-declared insurance reinstatement values.

The information provided is in summary only. Insurance reinstatement valuations/ reinstatement cost assessments are complex and detailed assessments.

For more information please contact us. Useful Links:

Joe Fraser Valuations:
https://joefraser.co.uk/valuations/

Joe Fraser HomeBuyer Surveys:
https://joefraser.co.uk/residential-services/homebuyer-surveys/

Free Public Calculator:
https://abi.bcis.co.uk