‘I get knocked down, but I get up again’ – But at what cost?
When you are on the hunt for your landlord insurance, you will be asked by all the underwriters you go to for a quote the cost it will take to rebuild your property from scratch – your ‘rebuild cost’. In this article, we attempt to provide you with a working knowledge of what that phrase means, why it is important for an insurer to know that information and attempt to unravel a common misunderstanding – the difference between rebuild cost and market value.
As a landlord, your primary asset is your building so there is a natural affinity to want to protect. Yes, you will look to insure component parts and against common types of risk but ultimately you cannot lose sight of the fact that there is the possibility you could lose the entire lot in one fell swoop. You should thus endeavour to provide your broker with as accurate a figure as possible when they ask you the cost of your property as if you undersell yourself you’ll be flawed fatally and, if you oversell yourself, you’ll be required to pay a higher premium rate for your landlord insurance in the future as you’ll have to go to a high risk insurer, such as the Lloyd’s market.
There are a number of breakdowns, if you pardon the pun, which accumulate to form a final figure for your rebuild cost. Included among them is the cost of the materials needed – bricks, glass, timber etc. – as well as the labour and planning costs. The reason that all these should be estimated as accurately as possible is because the effect it could have on your buy-to-let insurance. Get it wrong and premiums may be superficially low but, in the long run, you could have a rebuilt project on your hands that you will have to fork out for yourself as you’ve undersold yourself. Never play devil’s advocate over the sake of a few hundred pounds – it’s happened to stacks of people before you and will, sadly, continue to happen.
You should always conduct regular reviews on your property, especially if you are always tinkering with it or have had extensive face lift work on it since the time of your last evaluation or survey. Increasing its size or value will mean that rebuild costs will have risen so inevitably won’t be covered by your current landlord insurance deal, so check with your broker and amend accordingly as soon as possible.
Time now to shed some light on a common confusion amongst the landlord cohort. Many confuse the market value of their property as the same thing as rebuild cost; market value is more likely to be higher as rebuild cost does not take into consideration the value of the land that your property is lying upon. Because market valuation price is often higher then rebuild price, some landlords try and be cheeky and provide underwriters with a figure for the former. Big mistake – your landlord property insurance price will be substantive, resulting in a crude waste if you are never going to be able to claim on it. Should the need to claim arise, you’ll be found out anyway, so be careful before you decide to be bold.
You could head online to get your rebuild cost but we advise that you get in touch with a recognised chartered surveyor – not only will they be accurate, but they’ll give you a figure which you know that you are sure for. Remember, Humpty Dumpty had a great fall, and never got up. Don’t follow his lead!