Is buildings insurance a legal requirement?

Buildings insurance is not a legal requirement, but it is a condition of virtually every mortgage. If you have a mortgage, your lender will require you to maintain adequate buildings insurance for the life of the loan. If you own your home outright without a mortgage, it is not compulsory but is strongly recommended.

How is the rebuild cost calculated?

The rebuild cost is an estimate of what it would cost to completely reconstruct your property from scratch, including materials, labour and professional fees. It does not include the value of the land. You can estimate it using the BCIS online calculator, your surveyor's valuation report, or by asking a chartered surveyor to carry out a specific rebuild cost assessment.

Do I need buildings insurance if I own a leasehold flat?

The building will usually be insured under a policy arranged by the freeholder or managing agent, with the cost included in your service charge. You should check that this is the case and that the cover is adequate. You do not normally need to arrange your own separate buildings insurance for a leasehold flat, but you may want contents insurance.

What is Buildings Insurance? Meaning Explained

Buildings insurance covers the structure of your property, including the walls, roof, floors, windows, doors, fitted kitchens and bathrooms, and permanent fixtures. It protects against damage caused by events such as fire, flooding, storms, subsidence, falling trees, burst pipes and vandalism. The policy pays for repairs or — in the worst case — a complete rebuild.

Mortgage lenders require you to have buildings insurance in place from the date of exchange of contracts (when you become legally committed to the purchase). This is because the property is the lender's security for the loan — if it were destroyed without insurance, the lender would lose their security. You must maintain buildings insurance for the entire duration of your mortgage.

The level of cover should be based on the rebuild cost of the property, not its market value. The rebuild cost is the amount it would take to reconstruct the building from scratch, including materials, labour and professional fees. This figure is usually significantly lower than the market value because it does not include the land. Your surveyor or an online calculator from the Building Cost Information Service (BCIS) can help estimate the rebuild cost.

If you own a leasehold flat, buildings insurance is usually arranged by the freeholder or managing agent and covered within your service charge. You should check that the policy is adequate and that you are named on it or covered by it.

Example

Michael buys a three-bedroom semi-detached house for £280,000. The rebuild cost is estimated at £195,000 by his surveyor. He takes out buildings insurance for £195,000 at a premium of £210 per year. His mortgage lender confirms the cover is adequate. Two years later, a burst pipe causes £15,000 of damage to the downstairs ceiling and flooring. His buildings insurance covers the repair, subject to his £250 excess.

Key Points

Buildings insurance covers the structure and permanent fixtures of your property
Mortgage lenders require it from exchange of contracts throughout the mortgage term
Cover should be based on the rebuild cost, not the market value of the property
Leasehold flat owners are usually covered through the freeholder's policy via the service charge
Buildings insurance is separate from contents insurance, which covers your belongings