Lamar Chartered Surveyors

As a landlord you will want to protect your assets, one way to do this is through property insurance. When it comes to property insurance there are two separate valuations to use which dictate the amount of insurance. These are the property market value and its reinstatement value, and it is essential you see these as two different values.

The Property Market Value refers to the amount you will receive if you sell your property, whereas, the Reinstatement Value relates to the demolition and rebuilding costs of your property. If you rely only on your property's market value and an expert reinstatement valuation is not carried out, you cannot be sure that the correct sums insured are in place - you could end up under insured.

While you may find it tempting to have your property valued once and then adjust it according to national rates of inflation and property related indices, this is not recommended.

Inflation rates can differ significantly at a regional level. If you adjust your reinstatement value according to the national inflation rate it could soon become inaccurate. Property related indices such as the Building Cost Index give an estimation of how all costs change over time. But there are so many factors to consider, one average rate cannot be accurate.

Relying on the above to adjust an old reinstatement valuation can be detrimental to your property insurance cover. If you do not conduct regular valuations you are at risk of under insuring your property, therefore if anything was to go wrong you would have to foot the shortfall in the bill.

Having an accurate reinstatement value is crucial so your property is neither under nor over insured. If your property is under insured, in the event of a claim you may be faced with an undesirable gap in what the insurer pays out and what you actually need to reinstate your property. On the other hand, if your property is over insured you will end up paying higher premiums than necessary.

The issue with being under insured is that insurers can apply the Average clause in the result of a loss. This will deem you co-insurer for the percentage amount that you are under insured by. For example if your property is only insured for 75% of its true reinstatement value, your insurer may only pay 75% of a claim - even if the claim total cost is less than your insurance value.