What is Buildings Insurance?

A buildings insurance policy covers the reinstatement value of the property: the amount required to fully rebuild the premises to the same specification on the same site following a total loss. Reinstatement value is typically higher than market value because land is excluded but demolition, clearance, and rebuild costs are fully included.

Standard covered events: fire and smoke damage, lightning strike and explosion, storm and hail, water damage from leaking pipes, frost damage to installations, and forced-entry damage to the building shell. Extended policies may also cover flood, subsidence, and vehicle impact.

For commercial properties, the distinction between buildings and contents is critical. The buildings policy covers the structure and permanently fixed installations, central heating systems, lifts, fixed wiring, and built-in kitchens. Loose equipment, furniture, and stock fall under a separate contents or inventory policy.

In leased commercial premises, the lease agreement determines who arranges buildings insurance, almost always the landlord. However, tenants may be contractually required to take out glass insurance or supplementary damage cover for specific risks. Read the lease carefully.

When a commercial property is purchased with a mortgage, the lender almost always requires a buildings policy as a condition of the loan, typically with the lender noted as an interested party. A gap in cover or policy cancellation is a breach of the mortgage conditions.

A commercial premises without buildings insurance is an unacceptable financial risk. Fire or a major water leak can result in a total loss that threatens business continuity. Reinstatement costs can run to millions of pounds or euros.

Review the insured reinstatement value annually. Underinsurance occurs when the rebuild value has been understated, at claim time, the insurer pays only a proportionate share of the loss, not the full cost. This is a common and expensive trap.