What is the difference between day one value and declared value?

Day one value is the reinstatement cost at the date of the assessment, plus a percentage uplift (typically 50 percent for a two-year policy period) to allow for inflation during the policy period and rebuild period. The declared value is the reinstatement cost at the date of the assessment without the inflation uplift; the insurer then applies their own index-linking during the policy period. Both approaches aim to ensure adequate cover, but they work differently and it is important to use the correct figure for the type of policy in place.

How often should a reinstatement cost assessment be updated?

RICS recommends that a full reinstatement cost assessment is carried out at least every three years, with desktop index-linked updates in the intervening years. However, an earlier reassessment should be carried out if significant building works have been completed (extensions, refurbishments, cladding remediation), if construction costs have changed significantly (as they have in recent years), or if the building has been damaged and the existing assessment is no longer representative.

Managing Agents Guide to Building Insurance Valuations | Hampstead Chartered Surveyors & Building Consultancy

Q: What is a reinstatement cost assessment?

A reinstatement cost assessment (RCA) estimates the cost of completely rebuilding a building to its current specification, including demolition, site clearance, rebuilding, professional fees and VAT where applicable. It is not the market value of the property. The RCA is the figure that should be used as the sum insured on a buildings insurance policy. It should be carried out by a chartered building surveyor or quantity surveyor who inspects the building and calculates the cost based on its size, construction type, specification and any special features.

Q: What happens if the building is underinsured?

If the sum insured is less than the true reinstatement cost, the building is underinsured. In the event of a total loss, the insurer will pay only up to the sum insured, leaving a shortfall that falls on the building owner or leaseholders. In the event of a partial loss, many policies contain an average clause (or condition of average) that proportionally reduces the payout based on the degree of underinsurance. For example, if the building is insured for 60 percent of its true reinstatement cost, the insurer may pay only 60 percent of a partial loss claim. Underinsurance is a serious risk for managing agents, who have a duty to ensure adequate cover.

Overview

Getting insurance valuations right

Managing agents have a duty to ensure the buildings they manage are adequately insured. A reinstatement cost assessment carried out by a chartered surveyor is the most reliable way to determine the correct sum insured. Getting it wrong can leave leaseholders exposed to significant financial loss in the event of a claim.

What a reinstatement cost assessment covers

The RCA estimates the cost of completely rebuilding the building, including demolition, site clearance, rebuilding to the current specification, professional fees (typically 12 to 15 percent), and VAT where applicable. It is not the market value. The surveyor inspects the building and calculates the cost based on size, construction type, specification and special features.

Day one vs declared value

Day one value includes an inflation uplift (typically 50 percent) to cover cost increases during the policy and rebuild period. Declared value is the base figure without the uplift, with the insurer applying their own index-linking. Using the wrong figure for the policy type is a common cause of underinsurance.

Common pitfalls

The most common pitfalls are failing to commission a professional RCA at all (relying on online calculators or outdated figures), failing to update after significant building works, confusing day one and declared values, excluding demolition costs or professional fees, and failing to account for special features such as listed building status, basement construction or unusual materials.

FAQ

Frequently asked questions

What is a reinstatement cost assessment?

An estimate of the cost to completely rebuild a building, including demolition, rebuilding, professional fees and VAT. This figure is used as the sum insured on a buildings insurance policy.

What is the difference between day one and declared value?

Day one includes an inflation uplift for the policy and rebuild period. Declared value is the base figure with the insurer applying their own index-linking. Using the wrong figure for the policy type causes underinsurance.

How often should an RCA be updated?

Full assessment every three years with desktop index-linked updates in between. Earlier reassessment after significant works or major construction cost changes.

What happens if the building is underinsured?

The insurer pays only up to the sum insured for a total loss. For partial losses, average clauses may proportionally reduce payouts. The shortfall falls on the building owner or leaseholders.

Next Steps

Managing Agents Guide to Building Insurance Valuations