Last Updated on October 12, 2026 by Darren Carter.
Underinsurance can arise when the amount of buildings cover does not reflect the rebuild cost that the insurer requires for the property.
The issue often only becomes apparent when a claim is made and the insurer reviews the building sum insured. Depending on the policy wording and circumstances, this can lead to questions about the rebuild cost, an average clause or the information provided when the policy was arranged or renewed.
This guide explains how buildings underinsurance can arise, why rebuild cost is different from market value and practical steps homeowners can take to check their insurance position.
A property’s market value and its rebuild cost measure different things. Market value reflects factors such as location, land value, local demand and the housing market. Rebuild cost estimates what it would cost to reinstate the building following serious damage or total loss.
For buildings insurance, the relevant figure is normally the rebuild cost rather than the purchase price or current market value. Depending on the property, the rebuild cost can be either lower or higher than its market value.
Confusing market value with rebuild cost is a common cause of an incorrect building sum insured.
For example, the price paid for a home includes the value of the land and is influenced by location and demand. Those factors do not directly determine what it would cost to demolish, clear and reconstruct the building.
Rebuild cost can include labour, materials, demolition and site clearance, professional fees and other reinstatement costs. Property-specific features can also make a significant difference.
For this reason, neither the purchase price nor an estimated sale value should simply be substituted for a rebuild cost.
If an insurer believes a property was insured for less than the rebuild value it required, it may raise underinsurance when a claim is made.
Some policies contain an average clause. Where an applicable average clause is used, the insurer may seek to reduce an eligible claim in proportion to the level of underinsurance.
For example, a property with an appropriate rebuild value of £200,000 but a building sum insured of £100,000 would appear to be 50% underinsured. Under an applicable average clause, an insurer might seek to apply a corresponding reduction to a claim.
However, that reduction is not automatic in every consumer home insurance case. The policy wording, the questions the insurer asked, the information supplied and whether applying the clause is fair can all be relevant.
For a standard home, the ABI/BCIS House Rebuilding Cost Calculator can provide a useful starting point when estimating rebuild cost. You will need accurate information about the property, including its size, age and construction.
Online calculators are estimates and may not be suitable for listed, non-standard, extensively altered, high-value or particularly complex properties. In those circumstances, a professional rebuild cost assessment may be more appropriate.
A professional assessment can consider property-specific features such as construction, floor area, extensions, outbuildings, demolition, professional fees, access and other reinstatement requirements.
Rebuild costs can change over time as labour, materials, regulation and other construction costs change. This means a rebuild figure that was appropriate several years ago may no longer reflect current reinstatement costs.
Some insurance policies use index linking or other automatic adjustments. However, indexation cannot necessarily correct an inaccurate starting figure. If the original rebuild cost was wrong, increasing that figure each year may simply continue the underlying problem.
Review the building sum insured at renewal and after significant extensions, alterations or changes to the property. For unusual or complex buildings, periodic professional reassessment may also be appropriate.
Underinsurance is easier to address before a loss occurs than during an insurance claim.
Check what rebuild figure your insurer is asking you to provide and review it periodically. For a straightforward home, an appropriate rebuild calculator may provide a useful estimate. For listed, unusual, extended, high-value or complex properties, consider obtaining a professional rebuild cost assessment.
If you need personalised advice about which buildings insurance policy or amount of cover to purchase, speak to your insurer or an appropriately authorised insurance broker.
If you need a property-specific professional rebuild assessment, a suitably qualified surveyor or specialist rebuild cost assessment provider can help establish an evidence-based figure.
If an insurer raises underinsurance during an existing property insurance claim, Independent Loss Adjusters may be able to help you understand the basis of its position.
Depending on the claim, our review can include the building sum insured, available rebuild cost evidence, relevant policy wording, the insurer’s original questions and any average clause it is seeking to apply.
It can also be important to understand how the insurer calculated the rebuild cost and the percentage of underinsurance it says applies. If appropriate, further professional rebuild-cost evidence may be required.
We can help organise relevant claim information, communicate with the insurer where appointed to do so and review a proposed settlement against the policy wording and available evidence.
Professional claim support does not guarantee that an underinsurance decision or average-clause calculation will be changed. The outcome will depend on the policy wording, evidence, questions asked when the policy was arranged and the circumstances of the claim.
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