Buildings Insurance for Landlords: Rebuild Cost vs Market Value

For buildings insurance you are insuring what it costs to rebuild the structure, not what an estate agent could sell it for. Get that wrong and the average clause means you only get part of any payout, even on small claims.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. Rebuild cost vs market value

Definitions

• Market value: what the property would sell for, including land value and location premium.
• Rebuild cost (reinstatement value): what it would cost to demolish, clear and rebuild the structure to the same size and standard, today.

Key points

• In many areas, market value is greater than rebuild cost, because land and demand do a lot of the work.
• In some low-value or unusual areas, rebuild can be close to or above market value.
• Insurers want rebuild, not sale price. Insuring on market value is as dangerous as under-insuring: you either waste premium or trigger average.

BCIS (the RICS Building Cost Information Service) defines rebuild costs as including:

• Demolition and site clearance.
• Rebuilding in modern materials and techniques to equivalent standard.
• Professional fees (architects, engineers, surveyors).
• Compliance with current building regulations.

2. How to calculate an accurate rebuild cost and sum insured

Practical routes

BCIS / ABI rebuild calculators

• Free or low-cost tools based on property type, age, size, and location.
• Need: year built, property type, number of storeys/rooms, floor area.

RICS rebuild survey

• Most accurate, especially for: listed, thatched, large, architect-designed, non-standard construction, heavily extended.
• Typical cost GBP 400-1,500 depending on complexity.

Broker / insurer tools

• Some landlord insurers embed BCIS calculators in their quote journey.

Setting the sum insured

• Start with the base rebuild figure from BCIS / RICS.
• Add reasonable allowances for:
• Demolition and debris removal.
• Professional fees (often 10-15%).
• Potential cost uplifts over the year (inflation).
• Many practitioners effectively aim for rebuild cost + 15-20% as the insured amount for a standard house.

Note: flats are different - the freeholder or managing agent usually insures the whole block; you insure contents and sometimes internal improvements.

3. Underinsurance and the average clause

Underinsurance is rife

One large survey found 93% of properties insured for the wrong amount and 70% under-insured.

How the average clause works

Formula:

Payout = Claim x (Sum insured / True rebuild cost)

Example:

• True rebuild: GBP 200,000.
• You insured for GBP 100,000 (50% of reality).
• Fire causes GBP 50,000 damage.
• Insurer can pay only 50% of the claim = GBP 25,000, and you fund the other GBP 25,000 yourself.

That applies to any claim, not just total loss. So under-insuring to "save premium" can halve every payout, including small escape-of-water or storm claims.

A few policies offer "day-one uplift" or partial average-waiver if you are within, say, 85-90% of true value, but you cannot rely on that; wording varies.

4. What buildings insurance covers (and what it does not)

Typical buildings cover includes

• Structure: walls, roof, floors, ceilings, doors, windows.
• Permanent fixtures and fittings: fitted kitchens, bathrooms, built-in wardrobes, internal doors, boilers, fixed radiators.
• Outbuildings, walls, fences, drives and paths (subject to wording).
• Underground drains, pipes and cables serving the property.
• Perils: fire, explosion, storm, flood, escape of water, theft, impact, vandalism, sometimes subsidence (if included).

Exclusions / limitations

• Contents belonging to you (unless you add landlord contents).
• Tenant belongings - always their responsibility.
• Wear and tear and gradual deterioration.
• Pre-existing damage or poor maintenance.
• Subsidence and heave - often excluded or heavily conditioned unless specifically included.

Subsidence

• Where included, usually has a higher excess, commonly GBP 1,000-2,500.
• Properties in subsidence-prone postcodes can see premiums around 2.5x standard, with typical premiums quoted around GBP 545 for affected properties vs approx GBP 220-280 for standard rebuild bands.

Flood risk

• Flood-prone areas pay more; one broker reports average GBP 454/year landlord premiums in flood areas, roughly double unaffected areas.
• The Flood Re scheme helps with many owner-occupied homes but has limited application to PRS; some individual landlord policies still benefit indirectly in certain cases, but you cannot assume Flood Re applies to BTLs.

Accurate property description matters

• Construction type (brick vs timber frame vs non-standard).
• Flat roof percentage.
• Listed building status (typically huge uplift on rebuild cost).
• Extensions / loft conversions.

Wrongly describing these gives insurers a clear path to reduce or void claims.

5. Typical costs and common mistakes

Costs (2025-26 benchmarks)

• Median landlord insurance (buildings-only) in 2026 is about GBP 285/year.
• For a typical 3-bed terraced BTL with GBP 200,000 rebuild, expect GBP 220-280/year for standard buildings cover.

Premium rises sharply with higher rebuild bands:

Most common mistakes

• Insuring on market value rather than rebuild, especially in high-value markets.
• Guessing rebuild cost without using BCIS or a survey.
• Never reviewing sums insured after extensions, loft conversions or major refurb.
• Ignoring construction quirks (non-standard materials, high flat-roof percentage, listed status).
• Under-insuring "to save money" and discovering the average clause the hard way.
• Assuming subsidence and flood are always covered; they often are not, or have big excesses and conditions.

Forum myths to ignore

"If I am under-insured and there is a total loss, they will just pay to the sum insured." No. Average applies to partial claims as well, and in practice insurers often use under-insurance to limit all payouts, not just total-loss scenarios.

"Market value is always higher than rebuild so I am safe." BCIS and insurer guidance show cases where rebuild is greater than market, especially in low-demand areas or unusual constructions. You can be under-insured even with "high" market values.

"BCIS is overkill; just copy what the old policy said." That just copies any historic under-insurance forward. With recent spikes in materials and labour costs, 2018 sums insured are often too low in 2026.

"The insurer will tell me if I am under-insured." Their documentation and ABI guidance say the opposite: setting the correct sum insured is your responsibility. They may point you at BCIS, but they do not guarantee adequacy.

Legislation tracker, budget coverage, new tools. Free, no spam.

Didn't find what you were looking for?