What is the difference between a property's market value and its rebuild cost?

Market value is what buyers would pay for your home — it includes the land, location, and demand factors. Rebuild cost is the cost of demolishing and rebuilding the structure from scratch: materials, labour, professional fees, and compliance with current building regulations. For buildings insurance, you need to insure the rebuild cost, not the market value. In most markets, these figures are quite different — and in some city-centre markets the market value can far exceed rebuild cost.

How often should I review my buildings insurance sum insured?

The ABI and the Royal Institution of Chartered Surveyors (RICS) recommend reviewing your sum insured whenever you renew, after any significant renovation or extension, or following a period of high construction cost inflation. Many insurers apply an automatic index-linking clause to increase the sum insured annually — check whether yours does, and by how much, at renewal.

What is the average clause and how does it affect my claim?

The average clause (sometimes called the condition of average) is a contractual mechanism that reduces your claim payout proportionally if you are under-insured. For example: if your rebuild cost is £300,000 but you are insured for £200,000 (two-thirds of the true value), a claim for £60,000 in storm damage would only pay out £40,000 (two-thirds of the claim). This applies even to partial losses — not just total losses.

Does my insurer automatically increase my sum insured to keep up with inflation?

Many insurers apply an index-linking adjustment at renewal, typically based on a construction cost index. However, the index may not fully reflect actual cost increases in your specific region or property type. A large renovation or extension also falls outside any automatic adjustment. The safest approach is to get a professional rebuild cost assessment every five to seven years, and to check your index-linked increase at every renewal.

Consumer alert All regions Published 2026-10-08 6 min read

Home rebuild costs have risen sharply: are you under-insured?

Construction cost inflation has pushed rebuild costs well above what many homeowners expected when they last set their buildings insurance sum insured. Under-insurance can lead to significantly reduced claim payouts. Here is how to check and what to do.

What has happened to rebuild costs

Construction costs across the UK, Australia, and North America have risen sharply since 2021, driven by supply chain disruption, labour shortages, and energy-intensive materials costs. The Royal Institution of Chartered Surveyors (RICS) reports that residential rebuild costs in the UK rose by over 30% between 2021 and 2024, with some regions experiencing even larger increases.

The risk for homeowners is straightforward: if you set your buildings insurance sum insured several years ago and have not reviewed it since, your current cover may significantly understate what it would actually cost to rebuild your home.

This matters because of how the indemnity principle and the average clause interact: if you are insured for £200,000 but the true rebuild cost is £300,000, a partial loss claim of £60,000 may only pay out £40,000.

How to check if you are under-insured

The most accurate way to assess your rebuild cost is a professional survey. The RICS house rebuilding cost service provides guidance and surveyor referrals. For a rough check without professional help:

Use the BCIS House Rebuilding Cost Calculator — the standard tool used by UK insurers and surveyors, covering property type, size, and location.
Check your current renewal notice for your sum insured and whether an index-linking adjustment has been applied.
Compare your sum insured against the BCIS or RICS figures for your property type and region.
If the gap is more than 10–15%, contact your insurer to revise the sum insured upwards.

For a professional rebuild cost assessment — which provides a RICS-accredited valuation accepted by most UK insurers — expect to pay £150–£400 depending on property size and location.

The average clause: how under-insurance reduces payouts

Buildings policies typically include an average clause. It works as follows:

Example

True rebuild cost: £300,000
Your sum insured: £200,000 (67% of true value)
Storm damage claim: £60,000
Amount paid: £40,000 (67% of claim)
Your shortfall: £20,000

The average clause applies to partial losses — not just total losses. Even a relatively minor claim, such as damage from a broken pipe or a section of roof lost in a storm, can be significantly reduced if you are under-insured.

Some insurers offer policies that waive the average clause in exchange for a higher premium. For older or unusual properties where rebuild cost is genuinely difficult to estimate, this protection may be worth the extra cost.

What to do at your next renewal

Check your sum insured against a current rebuild estimate — do not rely on the figure you set several years ago.
Ask your insurer whether index-linking is applied and what index rate was used at the last renewal.
Disclose any extensions, loft conversions, or significant renovations completed since you last reviewed the sum insured.
Consider a professional RICS rebuild cost assessment if your property is older than 1919, unusual in construction, or has been significantly altered.

For context on how the natural hazard risk affects home insurance cover and limits, see our article on natural hazard coverage and what your home policy covers.

Rebuild costs FAQ

Frequently asked questions

: Market value is what buyers would pay for your home — it includes the land, location, and demand factors. Rebuild cost is the cost of demolishing and rebuilding the structure from scratch: materials, labour, professional fees, and compliance with current building regulations. For buildings insurance, you need to insure the rebuild cost, not the market value. In most markets, these figures are quite different — and in some city-centre markets the market value can far exceed rebuild cost.
: The ABI and the Royal Institution of Chartered Surveyors (RICS) recommend reviewing your sum insured whenever you renew, after any significant renovation or extension, or following a period of high construction cost inflation. Many insurers apply an automatic index-linking clause to increase the sum insured annually — check whether yours does, and by how much, at renewal.
: The average clause (sometimes called the condition of average) is a contractual mechanism that reduces your claim payout proportionally if you are under-insured. For example: if your rebuild cost is £300,000 but you are insured for £200,000 (two-thirds of the true value), a claim for £60,000 in storm damage would only pay out £40,000 (two-thirds of the claim). This applies even to partial losses — not just total losses.
: Many insurers apply an index-linking adjustment at renewal, typically based on a construction cost index. However, the index may not fully reflect actual cost increases in your specific region or property type. A large renovation or extension also falls outside any automatic adjustment. The safest approach is to get a professional rebuild cost assessment every five to seven years, and to check your index-linked increase at every renewal.