A reinstatement cost is what it would cost to fully rebuild a property, including demolition, professional fees and meeting current building regulations, not its market value. Setting the buildings sum insured to that figure is what avoids underinsurance. A reinstatement cost assessment, usually carried out by a RICS surveyor using BCIS rebuilding cost data, establishes the figure properly, and it matters because the average clause can cut a claim in proportion to any shortfall.
Underinsurance is one of the most common and costly mistakes in property insurance. It usually comes not from carelessness but from guessing the rebuild figure, confusing it with market value, or letting it drift as building costs rise.
What is a reinstatement cost?
It is the full cost of rebuilding the property from scratch after a total loss: demolition and site clearance, materials and labour, professional and architect’s fees, and the cost of complying with current building regulations, which can be higher than the original build. It is not the price the property would sell for; market value and rebuild cost can differ substantially in either direction.
What is a reinstatement cost assessment?
A reinstatement cost assessment is a professional calculation of the rebuild figure, typically carried out by a chartered surveyor working to RICS standards and drawing on BCIS rebuilding cost data. It is the reliable alternative to guessing or using an online estimate, and is particularly important for non-standard, listed, larger or commercial buildings, where generic figures are least accurate.
What is the average clause and why does it matter?
If a building is insured for less than its full reinstatement cost, the average clause lets the insurer reduce a claim in the same proportion as the underinsurance. A property with a 500,000 pound rebuild cost insured for only 250,000 pounds is half insured, so a 100,000 pound claim could be cut to 50,000 pounds. It applies to partial losses, not just total ones, which is what makes underinsurance bite even on everyday claims. Our guide to underinsurance and the average clause explains the mechanism in full.
How do I keep the sum insured accurate?
Base it on a proper reinstatement cost assessment rather than a guess or market value, make sure the policy applies index-linking to track building cost inflation, and have the figure reviewed periodically, especially after extensions or improvements. Index-linking helps, but it does not fix a figure that was wrong to begin with.
Getting the cover right
The rebuild figure is the foundation of a buildings policy, and getting it right is the single most effective defence against a reduced claim. A broker can help make sure the sum insured reflects a proper reinstatement cost. To review your property cover, get a quote or speak to the team.