Often mistaken as the same thing so what’s the difference?

Buildings Declared Value (BDV) and Buildings Sum Insured (BSI) are often confused and it’s important to establish what sort of policy you have.

If your policy shows a Buildings Declared Value and a Buildings Sum Insured then your policy includes an allowance for inflationary factors which can happen between the day your policy starts and the date of a potential claim; as well as the time taken for the repairs or rebuilding work to be completed.

The BDV is the value of the property, the bricks and mortar, everything that’s fixed to the property, including fitted kitchens and bathrooms on the day the policy starts.

It doesn’t take into consideration the value of the land or the desirability of the area; it’s simply the rebuild cost. The BDV should represent the total cost of re-building the property, including damage to outbuildings, car parks, professional fees and costs to comply with legislation, and it should also include an allowance for debris removal costs.

The Sum Insured figure is always higher than the BDV to cover you against the rise in building materials or inflation over the period of insurance.  For example: on the last day of the policy the price of materials may have seen a risen since the policy start date, and the BDV value you provided on day one of the policy could be far lower than the actual rebuilding costs on the last day. The supply chain crisis of 2021 has led to price increases in building materials, on top of delays in getting work done due to labour shortages1.

Policy schedules often show two buildings values. One referred to as the declared value (often shown as Building Declared Value or BDV) and one as the sum insured (often shown as Building Sum Insured or BSI), so it can get confusing.

Remember the important difference between these two is how the policy protects you against inflation in rebuilding costs.

The policy then includes an allowance (typically adding a maximum of 50%) for inflation during the year and, more importantly, during the rebuilding period, which, in the event of a serious loss, could be a number of years. Declared value is often referred to as ‘day-one value’. We always recommend you arrange cover on a ‘day-one declared value’ basis.

  1. https://www.ft.com/content/76be7676-879e-4304-95d5-6ae96c1e1507

Reviewed 1 January 2022 (FP1293-2021)

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited (Gallagher) trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.