How Much Cover Do I Need?

Buying a house will probably be the most expensive single purchase you'll ever make. It's absolutely essential to make sure that this investment is adequately insured, and in fact, most mortgage lenders will make this a requirement.

Sum Insured

The sum insured is the amount of money for which your home is covered, and will be the most your insurers will pay under any circumstances. The amount of insurance you arrange should be enough to cover the total rebuilding of the premises. This amount is not the same as the market value of your home, which has no direct relationship to the rebuilding cost of your home. Depending upon the type of property, the rebuilding cost could be higher or lower than the property valuation if it were for sale.

It is your responsibility to make sure that you have the right level of cover, to ensure that any future claim payments are not reduced due to under insurance. You should review this level of cover regularly, and inform your insurance company if you make improvements your home, such as building an extension or installing central heating.

Don't forget to allow an appropriate amount for walls, fences, gates, paths, patios, drives or swimming pools, and for any garages or outbuildings.

Your insurance company will usually provide you with a conversion table to estimate the rebuilding costs, and give you an idea of the level of insurance you require. However, there are a number of factors that may affect these estimated rebuilding costs, such as:

• Houses containing hazardous materials such as asbestos. This will require special precautions and treatment following damage or demolition.
• Houses built of materials other than brick; for example, stone.
• Houses with special design features.
• Listed or historic buildings. These properties will almost certainly have to be rebuilt to their original design using identical materials.

In these cases it's worth obtaining a professional valuation.

Professional Valuation

You can instruct a member of the Royal Institution of Chartered Surveyors to prepare a professional Rebuilding Cost Assessment. This will usually be performed by taking detailed measurements of the house and using the rebuilding cost information provided by BCIS (Building Cost Information Service).

Index Linking

To allow for inflation and changing rebuilding costs, you must ensure that your level of cover is kept up to date. Most insurance companies index-link the level of their cover year on year. This means that your sum insured is altered automatically whenever there is a change in the rebuilding cost. However, do not rely on index linking alone to keep your sum insured up to date; it is always wise to fully review your policy every 2 or 3 years to ensure that the cover remains adequate for your needs.