How to avoid Underinsurance: Rebuild Cost vs Sum Insured

In partnership with RebuildcostASSESSMENT.com (RCA)

Understanding your sum insured and rebuild cost for property insurance is one of the most important aspects of your insurance policy. After all, it’s the amount you’ll rely on if something goes wrong, like a fire, flood, or other unexpected event. Getting this right means the difference between being fully covered or facing a hefty financial shortfall.

In this blog, our Funeral Director Insurance team will explain why and, most importantly, how to make sure you’ve got exactly the right cover for your business premises.

Sum Insured: What you need to know

The sum insured is the maximum amount your insurer will pay if your home is damaged or destroyed and needs repairing or rebuilding. This figure should cover all rebuilding costs, including labour, materials, and clearing debris, after a major event like a fire or flood.

Important: In many property insurance policies, the sum insured includes an allowance for inflation (often referred to as a ‘Day One Uplift’). This uplift is added on top of the declared value, which is the estimated cost to rebuild your property at the start of the policy year. This declared value must be accurate, as it forms the basis for your overall cover.

Understanding Declared Value vs Sum Insured

The terms declared value and sum insured are often confused, but they serve different purposes:

• The Declared Value is the estimated cost to rebuild your property at the start of the
  insurance period, without factoring in inflation.
• The Sum insured is the maximum your insurer will pay out and usually includes an inflation
  buffer through the Day One Uplift. These uplifts typically range from 10% to 50%, depending
  on the policy.

For instance, let’s say the declared value of your property is £200,000, but with inflation, the cost to rebuild could rise to £220,000. Without the right level of cover, you could find yourself underinsured. However, if your policy includes a Day One Uplift clause for 20%, your sum insured will rise to up to £240,000.

Brian Patel knows this only too well after his home was destroyed in a fire. He bought his property in 2020 and had a rebuild cost assessment done at the time. His property was insured for £180,000, but due to inflation over the last few years, his rebuilding costs rose to more than £200,000. As he wasn’t protected by the Day One Uplift clause, he was out of pocket for the additional costs. This was an expensive oversight, and Brian isn’t alone. According to RCA’s research, more than 70% of UK properties are underinsured.

Quick Definitions

• Declared Value – This is the initial cost to rebuild your premises, as determined by a professional valuation or assessment. It’s essentially a snapshot of the rebuilding cost at the policy’s start date, before inflation is factored in.
• Sum Insured – This is the maximum amount your insurer will pay out if your premises is damaged or destroyed. It’s usually higher than the declared value because it includes an allowance for inflation and other potential cost increases over the policy period.
• Rebuild Cost – This is the total cost to completely rebuild your premises. It includes all expenses such as demolition, debris removal, materials, labour, and professional fees like architects or surveyors. The rebuild cost forms the basis for both the declared value and the sum insured.

Find out the true rebuild cost of your premises

Here at SEIB, we can offer a desktop, enhanced desktop or site valuation for your property in partnership with RebuildcostASSESSMENT.com*.

Simply fill out the form by clicking the button below for a call back or find out more here.

*Terms & Conditions apply

About SEIB

SEIB have been providing Funeral Director Insurance and Funeral Car Insurance for over 40 years. For more information or to request a quote, please complete the enquiry form below, call 01708 850000 or email info@seib.co.uk.