I was surprised to learn that there still seems to be quite a discrepancy between the market value of my home and its insured value. Why is this, and how do I know if I have adequate cover?


A. The market value of a property, and the value that is put on it for insurance purposes, are two very different things. Market value obviously reflects the price someone is prepared to pay for your home, while insured value is based on a calculation of what it would actually cost to rebuild it to the same specification in the event of something like a major fire. Even in the current market, the former is almost always higher – primarily because the insured value doesn’t take into account the value of the land on which a property sits. Consequently, this discrepancy shouldn’t really be a concern.

Whether or not the insured value is actually correct is another matter altogether, however. Generally speaking, insurance companies increase their valuations annually in line with inflation – but that won’t necessarily reflect the true cost of labour and materials at any given time. Besides, they may have got their sums wrong in the first place. Then again, you may have significantly extended or improved your home over the years, and unless you make a point of telling your insurers, they won’t have taken that into account.

As a general rule, I would advise you to check the insured value yourself every 2-3 years. Do this by multiplying the total area of your home in square feet or metres (frontage x depth if it’s a flat or bungalow, or frontage x depth x the number of floors if it’s a house) by the appropriate rebuilding cost per square foot or square metre. These costs are published by the Royal Institute of Chartered Surveyors, and should be available from any qualified surveyor. They will tend to vary, depending on things like the age of the property or whether it is detached, semi or terraced.

Once you’ve done your calculations, compare the result with the insurer’s valuation, and if you’re not happy, ask them to make the necessary adjustment. It might mean you pay a slightly higher premium, but it’s a small price to pay for peace of mind.