Property & BI

Buildings insurance

~5 min read

Category: Property insurance · Reviewed by the Apex broking team · Last reviewed 2026-08-21

In short: Buildings insurance covers physical loss of or damage to the structure of a premises and its permanent fixtures. In commercial insurance it is a heading within the property damage section, insured on a reinstatement basis and sized on rebuilding cost — never on market value. The single most consequential decision on a buildings item is the sum insured, because it is exposed to average and is very commonly out of date.

Category: Property insurance Also known as: buildings cover, structure insurance, property owners buildings insurance Related concepts: property insurance, contents insurance, subsidence insurance

Definition

The buildings heading covers the structure itself: walls, roof, floors, foundations, permanent fixtures and fittings, fixed electrical, heating, plumbing and ventilation installations, and normally outbuildings, boundary walls, fences, gates, yards, car parks and hard standings within the insured premises. Landlord's fixtures in a let property fall here; a tenant's own fit-out generally does not, and belongs under contents or a separate tenant's improvements item.

Cover is written on named perils or all risks and carries the standard property exclusions. Whether subsidence, heave and landslip are included, excluded or optional varies between markets and is a real point of difference when comparing quotations on older or structurally unusual buildings.

Reinstatement cost, not market value

The sum insured on a buildings item should be the cost of rebuilding the property as it stands, which is a construction cost, not a property price. A proper reinstatement cost assessment includes demolition and site clearance, professional and architects' fees, the cost of complying with current building regulations, and any additional cost of using matching materials and traditional methods on a listed or historic building.

Market value and rebuilding cost move independently. A city-centre flat can be worth far more than it costs to rebuild; a large industrial unit in a low-value location can cost far more. Insuring on the wrong figure is not a rounding error, because the buildings item is exposed to average: if the sum insured is materially short, a partial claim can be reduced in proportion. On any substantial commercial building, a periodic professional reinstatement cost assessment is money well spent.

Declared value, day one and index linking

Many commercial buildings items are written on a day one reinstatement basis. The insured provides a declared value — the reinstatement cost at the start of the period — and the insurer adds a percentage uplift, commonly a stated margin, to cover inflation and delay during the rebuilding period. This protects against tender price and material cost movement between the loss and the completion of the works.

Day one cover is not a cure for a bad declared value. The uplift is applied to whatever figure was declared, so if the declared value was wrong at inception the uplift simply scales the error. Index linking, which adjusts the sum insured through the year in line with a construction cost index, works the same way. Both are useful; neither replaces getting the base number right.

Who insures the building?

Under most commercial leases the landlord insures the structure and recovers the premium from tenants through the service charge or an insurance rent. The lease sets out what must be insured, against which perils, on what basis, and whose interest must be noted — and it will often require the insurer to waive rights of subrogation against the tenant, or to note the tenant's interest, so that the insurer cannot recover from the tenant after paying the landlord.

Owner-occupiers insure their own structure. Property owners and investors insure buildings under a property owners policy, which will normally add property owners liability and loss of rent cover. Where a building is mortgaged, the lender will usually impose its own insurance requirements as a condition of the facility. In every case the lease or loan agreement, not the schedule, defines the obligation — and mismatches between the two are common.

Where the personal-lines meaning differs

Household buildings insurance covers the structure of a private dwelling on broadly the same principles, and is generally required by mortgage lenders. The main structural differences are that household cover is standardised and frequently sold with an unlimited or bedroom-rated sum insured, and that a household buildings policy for an eligible home at flood risk may be ceded to Flood Re. No equivalent scheme exists for commercial buildings, or in the general case for leasehold blocks of flats.

Why it matters

The buildings sum insured is the number most likely to be wrong and most expensive to get wrong. It ages silently: construction costs move, the building is extended, a mezzanine goes in, and the figure on the schedule stays where it was. The consequence only appears at claim stage, applied to a partial loss, when there is no way to fix it.

Frequently asked questions

What should a buildings sum insured be based on?

The cost of rebuilding the property as it stands, including demolition, site clearance, professional fees and compliance with current building regulations. On listed or unusual buildings it must also reflect matching materials and traditional methods. It is not the market value and not the purchase price.

What is day one reinstatement cover?

A basis of cover where the insured declares the reinstatement cost at the start of the period and the insurer adds a stated percentage uplift to allow for cost inflation and delay during rebuilding. It protects against movement in construction costs, but it only scales whatever declared value was given, so the base figure still has to be right.

Does the landlord or the tenant insure the building?

Under most commercial leases the landlord insures the structure and recharges the premium to tenants. The lease sets out the perils, the basis of cover and whose interests must be noted, and often requires subrogation rights against the tenant to be waived. Tenants normally insure their own contents, stock and fit-out.

Is subsidence included in buildings insurance?

It varies. Some commercial buildings wordings include subsidence, heave and landslip as standard, others exclude it or offer it as a priced option, and cover on older or structurally unusual properties may carry a higher excess. It is one of the more important points to compare when quotations look otherwise similar.

Related entries

When was the rebuilding cost last assessed?

If the answer is “when we bought it”, the figure is almost certainly wrong. Bristol-based, FCA-regulated, wordings first.

Call 0117 325 0027 info@apexinsurancebrokers.co.uk

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.

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