Declared value is the amount you tell your insurer a building is worth when setting up a property insurance policy. It typically refers to the full cost of rebuilding the property from scratch – including materials, labour, demolition, debris removal, and professional fees (e.g. architects and engineers) – but excluding inflation over the policy term.
It forms the basis for calculating your buildings sum insured, and it’s a critical figure. If your declared value is too low, you risk being underinsured, which could significantly reduce your payout if you ever need to make a claim.
Declared value vs sum insured
It’s important to understand the difference between these two terms:
- Declared value is the present-day rebuild cost of the property (at the start of the policy).
- Sum insured is the amount the insurer agrees to cover, often the declared value plus a percentage uplift to account for inflation during the policy year (known as a day-one uplift).
For example:
- Declared value: £500,000
- Uplift: 15%
- Buildings sum insured: £575,000
Examples of declared value in context
Homeowner: standard house rebuild
Your property has a rebuild cost of £250,000 based on a professional valuation. This becomes your declared value. The insurer adds a 10% day-one uplift, setting your sum insured at £275,000.
Landlord: rental flat block
You insure a block of four rental flats and declare a rebuild value of £1.2 million, following advice from a chartered surveyor. This ensures you’re fully protected if a major fire or structural issue leads to total loss.
Business owner: commercial warehouse
You own a warehouse and declare a rebuild value of £3 million. This figure forms the basis of any future settlement, assuming it’s accurate and up to date with current construction costs.
Why declared value matters
It affects your premium
Your declared value influences the total amount you’re insuring and therefore your premium. Understating it to reduce your costs might save money short-term, but it puts you at serious financial risk in the event of a claim.
It can trigger the average clause
If you underinsure your building and then suffer a loss, insurers can apply the average clause, reducing your payout in proportion to the underinsurance.
For example:
- Declared value: £500,000
- Actual rebuild cost: £1 million
- Claim made: £100,000
- Payout: £50,000 (only 50% of the claim)
Declared value should be reviewed regularly
Construction costs rise over time, especially during periods of inflation or material shortages. You should review your declared value annually, or whenever you renovate, extend, or significantly alter the property.
FAQ’s
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Is declared value the same as market value?
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No. Declared value is based on the cost to rebuild, not the price the property would sell for. Market value includes factors like land, location, and demand, which don’t affect your rebuild cost.
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How do I calculate my declared value?
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The most reliable method is to commission a professional Rebuild Cost Assessment (RCA) from a RICS-accredited surveyor. Some insurers offer online calculators, but they may not account for complex or non-standard buildings.
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What happens if I get it wrong?
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If you under-declare, you risk underinsurance and a reduced payout due to the average clause. If you over-declare, you may end up paying more than necessary for your policy.
