Art. 08 · What the policy says · 3 min read
Sums insured: rebuild cost, not market value
These are two different quantities measured in the same currency, and using one where the other belongs is the most common expensive mistake on a schedule.
Market value answers: what would someone pay me for this? It includes the land, the location, the view, the tenant, the yield. Rebuild cost answers something else entirely: if this were flattened tomorrow, what would it cost to put it back?
Rebuild cost includes things a sale price never touches. Clearing the site. Demolishing what's left safely. Architects, engineers, planning. Building regulations that have moved on since the place went up: you rebuild to today's standards, not 1974's. And construction cost inflation across the year or two the work takes.
Contents follow the same logic. Check which basis your policy uses, because the difference on a decade-old fit-out can be enormous.
And revalue. Construction costs have moved sharply in recent years, and a sum insured set five years ago and index-linked by a generic percentage may be nowhere near the real figure. This is not a small technicality. It is the direct cause of the problem in the next article.
Use it
- Find the date of your last valuation. If it is more than three years old, or if it was "the mortgage valuation," it is probably wrong.
- Check the basis for contents and plant. Reinstatement or indemnity: the schedule will say, and the difference matters most on your oldest assets.
- Include the invisible costs. Site clearance, professional fees and regulatory upgrades are part of rebuild cost. A builder's per-square-metre estimate usually isn't.