Building Insurances: Understanding Reinstatement Value and Reinstatement Cost

Reinstatement value and reinstatement cost are terms used for insurance purposes to determine the coverage needed for a property to be fully reinstated in cases of unforeseen events. Both terms refer to distinct concepts which are crucial in assessing and protecting the value of your assets. In this article, we explore the difference between reinstatement value and reinstatement cost.

What is Reinstatement Value?

Reinstatement value relates to insurance coverage and the estimated cost of rebuilding or repairing a property to its original condition in the event of damage or destruction. This value considers factors such as construction costs, materials and labour, to ensure that the insured property can be fully restored in an unforeseen event. It is crucial for property owners to accurately determine the reinstatement value to avoid underinsurance, which could lead to insufficient coverage in the event of a claim.

It is recommended for a reinstatement valuation to be carried out to ensure that you have a more accurate valuation for your insurance purposes. The reinstatement valuation will provide you with an estimated amount for what your property should be insured at and the costs associated with reinstatement, should the property be destroyed. By having an accurate reinstatement value, you will protect yourself in the event of a claim to ensure that you are neither under nor over-insured.

What is Reinstatement Cost?

Reinstatement cost on the other hand, includes not only the expense of completely rebuilding or repairing a property if it were destroyed, but also other associated costs that will make up the total value of the entire rebuilding process. These additional costs may include fees for clearing the land or fees for professionals involved in the reconstruction process such as surveyors.

Reinstatement cost provides a more comprehensive estimate of the total financial outlay required to reinstate a property to its former state. You should note that reinstatement cost is not the same as the value of your property, but instead an accurate cost for reconstruction of your property. It is important for you to find out how much it would cost to rebuild your property to avoid insuring your property for an amount below the actual reinstatement cost as your insurers will only pay out their proportion of the costs.

What are the distinguishing factors?

Reinstatement Value:

1. Refers to the estimated cost of rebuilding or repairing a property to its original condition after damage or destruction.
2. Used to determine the insurance coverage needed for full reconstruction.
3. It is an estimate, taking into consideration factors like construction costs, materials and labour.

Reinstatement Cost:

1. Represents the actual expense incurred to restore a property to its original state after damage.
2. Includes all costs associated with the reconstruction, including construction, materials, labour and any additional expenses.
3. It is the actual expenditure required to reinstate the property to its pre-damaged condition.

In summary, reinstatement value is an estimate used for insurance coverage, while reinstatement cost is the actual financial expenditure for rebuilding or repairing a property.

This is applicable for any type of property whether a Freehold or Leasehold as it is important that you understand the potential costs involved. If your property is a Leasehold, it would however be necessary to clearly understand your responsibilities regarding your Building Insurance. In some cases, the Landlord may manage these costs, however, it is important to refer to the terms of your Lease for clarification of this.

Conclusion

As a property owner it is crucial for you to be aware of the distinction between reinstatement value and reinstatement cost so that you can ensure you have adequate insurance protection, a correct property valuation and risk management to mitigate potential financial loss.

How Pinney Talfourd can help

Our Residential Property Team are here to assist you throughout the conveyancing process, providing tailored advice to meet your individual requirements. If you wish to discuss this topic further, please do not hesitate to contact a member of our Residential Property Team. Should you require any additional advice regarding your Building Insurance or any other matter during your transaction, please do contact your case handler who will be happy to assist you further.