It can come as a surprise to some that the market value of a property has no direct relationship to the reinstatement cost of a building. However, as the property owner, you are responsible for insuring your property to the right rebuilding cost value. If the value is too low, the insurers are not obliged to pay the full costs required to reinstate the building and may only pay a portion of the costs.

Getting the rebuild value correct is particularly important for commercial property owners where, in a number of cases, clauses such as “Average” can be implemented by insurers if the sums insured are too low. In commercial building insurance, the “average clause” is a policy provision that means if your property is underinsured (insured for less than its full rebuild cost), your insurance payout will be reduced proportionally to the level of underinsurance, essentially meaning you will only receive a percentage of your claim based on how much you were underinsured by when a loss occurs; it encourages policyholders to insure their property for its full rebuild value to avoid financial losses in case of a claim.