Home insurance and rebuild cost explained
The most common home-insurance mistake is insuring for the wrong amount. This guide explains rebuild cost vs market value, how contents are valued, under-insurance, and how premiums are set.
Rebuild cost vs market value
Your buildings sum insured should be the rebuild cost — what it would cost to demolish and reconstruct your home, including materials, labour, demolition and professional fees. This is almost always lower than the market value, because the market price includes the land and location, which don't need rebuilding. Insuring at the market value means over-paying; insuring too low triggers under-insurance penalties. For standard homes, rebuild guides (BCIS) give a per-square-metre figure by region; for period, listed or non-standard properties, get a professional assessment.
How contents are valued
Contents cover everything you'd take if you moved — furniture, electronics, clothes, kitchenware, valuables. Value it on a "new-for-old" basis (replacement cost, not second-hand value) by going room by room; it's usually more than people guess. High-value items like jewellery, bikes and laptops often need to be listed individually, and cover away from home is a separate option.
Under-insurance and 'average'
If your sum insured is too low, insurers apply the principle of "average": they reduce your payout in proportion to the under-insurance. Insure your contents for £30,000 when they're really worth £60,000, and a £10,000 claim could be cut to £5,000 — even though the loss was below the sum insured. Getting the figures right protects you when it matters most.
Review after big changes
What drives the price
Buildings premiums track the rebuild cost, your location (flood and subsidence risk), property age and construction type. Contents premiums track the sum insured, your postcode's theft risk and security. Raising your voluntary excess, fitting approved locks and alarms, and combining buildings and contents with one insurer all reduce the cost. As with car cover, loyalty rarely pays — compare at renewal.
Common mistakes
- Insuring for market value. You only need the rebuild cost, which is usually lower. Over-insuring wastes money.
- Under-valuing contents. Room-by-room, contents are worth more than you think. Under-insurance cuts payouts.
- Not listing high-value items. Jewellery, bikes and gadgets often exceed single-item limits unless specified.
- Forgetting flood/subsidence risk. Check your risk; some areas need specialist cover (e.g. via Flood Re).