Home insurance: why the rebuild cost matters more than what your house is worth
Buildings and contents cover explained, how to get the rebuild figure right and how underinsurance can cut a payout
Home insurance is two products, buildings and contents, and the single figure that causes the most trouble on a claim is the rebuild cost. Set it too high and you overpay every year. Set it too low and the insurer can scale down what it pays, even on a small claim. This guide explains how to get it right and what else to check before you renew. Information only, not personal advice.
Buildings versus contents
Buildings cover pays to repair or rebuild the structure: walls, roof, floors, fitted kitchens and bathrooms, and usually outbuildings, drives and fences. If you have a mortgage, your lender will insist on it. If you own a leasehold flat, the freeholder or management company usually insures the building and charges you through the service charge, so check before you buy your own.
Contents cover pays for what you would take with you if you moved: furniture, clothes, electronics, carpets in most policies, and belongings. Tenants only need contents cover. You can buy the two separately or as a combined policy.
Rebuild cost is not market value
Market value is what a buyer would pay, which includes the land and the location. Rebuild cost is what it would take to clear the site and build the same house again, including demolition, labour, materials and professional fees. In most of the country the rebuild figure is lower than the market value, sometimes by a wide margin. In a few areas with cheap land and expensive construction, it can be higher.
Ways to find the figure:
- Your mortgage valuation report usually states a reinsurance or rebuild figure.
- The Association of British Insurers publishes a free rebuild cost calculator based on Building Cost Information Service data.
- For unusual properties (listed, thatched, non-standard construction) a chartered surveyor's estimate is more reliable.
Building costs have risen sharply since 2021. A rebuild figure copied from an old policy may be well short of today's cost.
Index-linking
Most policies are index-linked, meaning the sum insured rises each year in line with a building cost index so it keeps pace with inflation. Check your renewal document. If the figure has not moved for several years, it is probably not index-linked, or the insurer has switched you to a fixed sum. Some policies now offer "unlimited" or a high blanket sum for buildings, which removes the guessing entirely; compare the price against a standard policy.
Underinsurance and the average clause
Many policies contain an "average" clause. If you insure for less than the true value, the insurer pays claims in the same proportion. Insure a £300,000 rebuild for £150,000 and a £20,000 kitchen fire claim can be cut to £10,000. This applies to small claims too, not just total loss.
Contents work the same way. Walk through each room and add up what it would cost to replace everything new. Most people undercount. Check the single-item limit for anything valuable and list items above it separately.
| Cover part | Insure for | Common mistake |
|---|---|---|
| Buildings | Full rebuild cost | Using market value or an old figure |
| Contents | New replacement cost of everything | Guessing low, ignoring single-item limits |
| Valuables | Individual item value | Not listing items above the limit |
Accidental damage
Standard policies cover named events: fire, flood, storm, theft, escape of water. Accidental damage is an add-on that covers things like drilling through a pipe or dropping a laptop. It costs extra and raises the premium. Weigh it against the excess: if the excess is £250 and most accidents cost less than that to fix, the add-on may not pay for itself.
Flood risk and Flood Re
If your home has flooded before, or sits in a flood risk area, quotes can be high or refused. Flood Re is a government-backed scheme that lets insurers pass the flood part of the risk on, which keeps cover affordable for homes built before 2009. You do not apply to it directly; ask insurers whether they use it. Homes built after 2009 are excluded, as are most buy-to-let properties. Check your flood risk on gov.uk.
What to do next
- Recalculate your rebuild cost this year rather than rolling over last year's figure.
- Confirm index-linking on the renewal document.
- Add up contents room by room and check the valuables limit.
- Compare quotes on the same sums insured, then check a comparison site for today's prices.