The property from which you operate your business is obviously of vital importance. What would you do if it was completely wiped out? No doubt you’d rely on your buildings insurance to cover you for full reinstatement.
If this is the case, then you’ll need to check something vitally important: that your buildings reinstatement value has been quoted correctly on your insurance policy. If it hasn’t then you won’t be adequately covered, which means you won’t be paid the amount you need to get your premises back to where it was or to cover your incurred costs during its rebuild.
One of the most common mistakes made when insuring commercial premises is with the reinstatement value. A lot of people believe that the reinstatement value, also known as the ‘Declared Value’ or rebuild value, tallies with the current market value of the property. This is not the case however.
What is Reinstatement Value?
Reinstatement value refers to how much it would cost to completely rebuild a property from scratch. As well as the actual rebuild itself, the value will include other factors such as site clearance, debris removal and professional fees for surveyors and architects.
If you get the reinstatement value wrong then you could end up underinsured, which means your insurer will only pay out a proportion of the total rebuild cost, and that will be directly connected to the amount by which you are underinsured.
So for example, you have insured your commercial property at a Declared Value of £100,000. The actual rebuild cost runs to £300,000 however. The insurer will only pay out a third of any claim you make.
It is therefore a false economy to declare a lower rebuild cost, even if it appears tempting in order to keep the premium down.
How to Calculate the Correct Reinstatement Value
You can obtain a reasonably accurate reinstatement value from a recent mortgage offer. However, the most accurate figure and perhaps the only 100 per cent guaranteed one will come from a qualified buildings surveyor’s report. Their report will follow a detailed inspection and will therefore be completely accurate, as well as being something you can totally rely upon.
Bear in mind that reinstatement values should be regularly reviewed, as costs do rise.
The good thing about investing in a professionally calculated reinstatement value is that it could well uncover the fact that you are paying more than you should be for your buildings insurance.