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When purchasing a commercial property damage insurance policy, it is critically important to accurately report the declared value (DV) of your property. 

The declared value represents the cost to reinstate the property at the beginning of the policy period, excluding future inflation. Insurers use this figure, alongside the sum insured (SI) – which includes an allowance for projected inflation – to determine coverage levels and premiums.

Failing to declare the correct value can expose your business to the risks of over or under insurance and leave you vulnerable to significant financial and legal consequences, affecting both the policyholder and any third parties involved. Understanding these risks is crucial to ensuring adequate protection and compliance with insurance requirements.

As part of our Q&A series, our expert team has already shared top tips and advice on insurance valuation methods and key considerations for assessing reinstatement costs. In this article, we’ll answer our clients’ most common questions on the implications of incorrect declared values in insurance.

Declared values vs sum insured: what’s the difference? 

What are declared values (DV) in insurance? 

This is the value that policyholders report to their insurers as the current value at risk, typically determined by an independent valuation. It may be referred to as ‘Day One Reinstatement’, indicating the costs are as at the first day of the policy, excluding future inflation. 

Some key considerations here are that most policies are on a reinstatement basis, essentially ‘new for old’, so declared values ought to represent the current cost to rebuild or replace the existing property to the nearest modern equivalent, including allowances for any changes to building regulations and other legislation.

What is sum insured (SI)?

This term refers to the declared value plus an additional allowance to reflect the impact of inflation, during the policy term and the reinstatement period, ensuring adequate coverage. Essentially, it’s the maximum amount an insurer will pay in the event of a total loss. 

Insurers may adjust the inflationary allowance based on factors such as the complexity of the property and projected cost changes. We recommend consulting your insurance broker, who can help clarify how this calculation is handled.

Do I need to include demolition costs?

Yes, declared values should include the estimated costs of demolition and debris removal. This may need to include for the costs of shoring up adjoining properties, and for the licenced removal of asbestos or other contaminants that may be present.

What happens if your declared values are incorrect? 

Overstating or understating your declared values comes with significant risks. Here’s what may happen in these instances.

The risks of overstating declared value

If the declared value is higher than the property’s actual reinstatement cost, the policyholder might pay unnecessarily high premiums without receiving additional protection. 

In cases where third parties are involved, those responsible for arranging the insurance could face liability claims for incurring unnecessary costs.

The risks of understating declared value

An understated declared value can lead to underinsurance, exposing the policyholder to financial shortfalls in the event of a claim. 

Additionally, directors responsible for insurance arrangements could face legal consequences if shareholders or related parties hold them accountable for negligence. 

In extreme cases, insurers may consider an understated value as a misrepresentation, potentially voiding the policy and leaving the policyholder without coverage.

The risks of your business being underinsured

Underinsurance is one of the biggest risks businesses face when cover levels are not up to date or accurate. Charterfields produce an annual ‘insurance gap’ report and in 2026, we found that both buildings and contents at all locations we inspected are overwhelmingly underinsured, at 87% and 83% respectively.

If your property or assets are insured for less than it would actually cost to reinstate, you could end up facing a significant shortfall in a claim event.

Most insurance policies include an ‘Average Clause’ which means that if you are underinsured, any claim settlement will be reduced in proportion to the shortfall. For example, if your property is insured for only 75% of the true reinstatement cost, an insurer may only pay out 75% of any claim, even if that claim is for partial damage.

This mechanism protects an insurer, given that the full premium has not been received and adequate cover has not been in place.

That outcome could leave you with a significant gap to cover, and in some cases, this could affect a business’s ability to recover and continue trading.

How do declared values affect premiums?

Insurance premiums are typically calculated as a percentage of the declared value or sum insured. While adjustments to declared values are common following an insurance assessment and may lead to premium changes, these do not always increase proportionally. 

Insurers may modify their rates based on risk management measures in place, the reliability of the valuation and the policyholder’s claims history. A thorough and up-to-date insurance valuation can instil confidence in insurers, potentially resulting in lower rates.  

How do insurers reference declared values in claims?

In the event of a claim, especially for significant losses, insurers will typically review the declared value. If it is found to be too low, the insurer may apply the “average clause,” leading to reduced payouts. In the worst-case scenario, if an insurer determines that the declared value was deliberately understated, they may deny the claim altogether.

A recent independent assessment by a reputable firm can provide assurance on the declared values to insurers and their loss adjusters, demonstrating that the declared values are accurate and reducing the risk of disputes.

What steps can you take to ensure accurate declared values?

  1. Obtain professional advice on values – Regular independent reinstatement cost assessments ensure that your declared values remain accurate and aligned with current market conditions. Getting expert support with your valuations means that complex property such as heritage buildings, healthcare facilities, process plants, food facilities and aviation properties are fully covered in the event of a claim.
  2. Review your policy regularly – To make sure that your declared value and sum insured are updated to reflect inflation and changes in property reinstatement costs.
  3. Keep documentation – Maintain records of historic costs, valuations, policy renewals and any correspondence with insurers to support your declared values in the event of a claim. Maintaining a schedule of your current assets means you will have access to the details required by insurers quickly in the event of a claim.

What is a reinstatement cost assessment?

A reinstatement cost assessment (RCA) is an independent assessment of how much it would cost to rebuild or replace your property or business assets if they were destroyed by an insured event. In reflecting the total reinstatement position this ensures adequate cover exists to cover partial losses that are more common.

Unlike a market valuation, reinstatement cost takes into account current construction and asset replacement costs, professional fees and any specific requirements linked to the property, to match with your insurance policy terms. Here’s how reinstatement costs are calculated.

How often should I get a reinstatement cost assessment?

There’s no strict rule about how often you need an assessment, but it is recommended that businesses get independent advice on reinstatement costs every three years. We recommend that RCAs should be carried out at least every year, to reflect inflation volatility, and substantial changes to assets or property. Some insurers may require more frequent assessments, particularly for certain types of property and this is prudent for complex facilities where costs can change rapidly. 

You should also arrange a new assessment if there have been significant change to a property. For example, if it has been extended, refurbished or altered, or if construction costs in your area have noticeably increased.

What happens if your declared value is challenged?

If an insurer challenges your declared value, they may conduct their own valuation or appoint a loss adjuster to reassess the reinstatement cost. If they find discrepancies in your policy, you may be subject to reduced payouts or policy adjustments. 

Having a recent independent valuation can serve as strong evidence to counter disputes and secure a fair claims settlement.

Avoiding the risks 

To avoid financial and legal risks, keeping your reinstatement cost assessments accurate and up to date is a must. This checklist covers best practice:

  • Review your reinstatement cost assessment regularly

Industry best practice is to rebase your valuation every three years.

  • Use qualified, experienced surveyors

Always use RICS qualified professionals to carry out your reinstatement cost assessment.

  • Understand your contractual and legal obligations

Check the terms of any mortgage, lease agreement or insurance policy to make sure you’re meeting their requirements.

  • Keep your insurance cover up to date

Once you’ve had a reinstatement cost assessment carried out, make sure it is updated regularly.

  • Maintain clear communication and records

Make sure you always keep a clear record of assessments, valuations and insurance updates, and communicate any significant changes to your broker, insurer and, importantly, your advising surveyor.

How to fix incorrect declared values

Accurate declared values for your property and assets are key to securing appropriate insurance coverage – and avoiding the financial and legal risks associated with over or under insurance. 

Regular independent valuations and consultations with insurance brokers can help policyholders avoid costly mistakes and ensure adequate protection. At Charterfields, we specialise in independent insurance valuations, helping clients in a range of sectors establish accurate declared values and secure the right insurance coverage for their needs.

Book an independent valuation today

Ready to put your mind at ease with a thorough, independent insurance valuation? Access expert advice on declared values and insurance assessments by getting in touch with our team. 

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