What Does “Reinstatement Value” Mean?

This is a term coined by the insurance industry to define the amount of money they may pay out if a building burns down or is otherwise destroyed.

In my experience, it seems to be based on the lowest credible market value of materials and labour needed to recreate the construction of the building.

It is important to realise that it is not necessarily intended to reflect the cost of modern construction, because building regulations evolve constantly and most houses are, in fact, quite obsolete. There is a rule of thumb when dealing with insurance companies, that a customer should never profit from an insurance claim. This often places victims of unexpected losses in a difficult situation.

If you were to rebuild a house from the 1990’s using only it’s “reinstatement value” you would almost certainly be left with a house that could not be deemed compliant with current building regulations. “Reinstatement value” is a highly problematic term for architects because it has no practical regard for the legal requirement to build within the current building regulations.

These values are widely available online, and many consumers equate these values to construction costs for new houses. This is a very serious mistake.