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When taking out landlord insurance for your buy to let property, your insurer will want to know the rebuild costs of the property to be insured. Here we explain what rebuild costs are, the reasons rebuild costs are required, the difference between the rebuild costs and the market value of your property, and how rebuild costs are calculated.
Why do you need to know the rebuild costs?
Insurers need to know how much a building should be insured for in case it is destroyed and needs to be rebuilt. As the property owner, the onus is on you, the landlord, to get the sum right. Help is available, with online links included here to help you find a chartered surveyor or to estimate your rental property's rebuild costs using an online calculator.
What are rebuild costs?
The rebuild cost of your rental property is the amount it would cost to rebuild if it were destroyed. In addition to the costs of materials and labour, professionals' fees, such as surveyors, should also be included. The rebuild costs directly affect how much your rental property should be insured for and, in turn, the amount of insurance premium you need to pay. If the rebuild cost is calculated incorrectly then you as the landlord could pay the price.
If the rebuild cost is calculated too low then you may be underinsured. In reality, this means that if your rental property needs to be rebuilt then you will have to make up the difference between the amount the insurance company pays out and the total rebuild cost.
If the rebuild cost is calculated too high, then you could be paying too much for your landlord insurance.
Review
It is essential that you review your property's rebuild costs on a regular basis to make sure you have the right level of insurance cover. This is particularly the case if you make any changes to the property (such as building an extension) which could increase the rebuild costs and the level of cover you need.
Some insurers use index linking* (definition below) to review the rebuild costs and your insurance premiums could then be altered in line with this. Check with your insurer whether this is the case with your policy.
Are rebuilding costs the same as a property's market value?
Rebuild costs are NOT the same as a property's market value or your council tax band's valuation. In fact, market value is often higher than the rebuild costs because the market value of your property includes the land on which it sits and land accounts for roughly one-third of the market value. Rebuild costs do not include the value of the land because often when a building is destroyed the land is unaffected and so can be rebuilt upon. If you are tempted to cut corners and provide your insurer with the market value rather than the rebuild costs then think again as you're more than likely to be left out of pocket because your buy to let insurance premiums may be higher than they need be.
How are rebuild costs calculated?
There are two ways to calculate rebuild costs:
- Use an online calculator.
- Hire a professional chartered surveyor.
Although an online calculator can provide you with a rebuild costs estimate based on the information you provide, the most reliable way in which to calculate the rebuild costs of your property is to use a professional chartered surveyor.
Online resources
To find a professional chartered surveyor visit: www.ricsfirms.com
To calculate your estimated rebuild costs online visit: http://calculator.bcis.co.uk
By taking the time now to check the true rebuild costs of your rental property and by reviewing the costs on a regular basis, you can make sure you've got the right level of cover. It will also make it quicker and easier to get a quote for landlord insurance.
*Index linking protects you against underinsurance. At each annual renewal, your insurer will review and increase the building sum insured in accordance with an index linked to inflation. This ensures that you have sufficient insurance to cover the increasing rebuild costs. NB Although index linking will keep the insured sums up to date, the initial rebuild costs must be correct from the outset if you want to be certain that you have enough insurance cover.
Related articles:
Attracting and keeping tenants
Legal tips for landlords
Dealing with problem tenants
General landlord information (DIY, Inventories and more..)
Energy-saving tips for landlords and tenants
Financial tips for landlords
Buying a buy-to-let property (auctions, location etc)
Insurance for landlords
Using letting agents
Mortgage information for landlords
The information contained within this article is for general information purposes only, it does not constitute advice. Direct Line for Business endeavours to keep the information up to date and correct but does not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Direct Line for Business will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information.
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