A home's market price and its rebuilding value answer two different questions: the first is what the property would sell for, the second is what it would cost to rebuild today. In home insurance, the second is what counts – and anyone who confuses the two either pays more than they need to, or receives less than expected when a claim happens.
- Market price includes the value of the land and location – neither is destroyed in a claim, so neither belongs in the sum insured.
- Rebuilding value is built from today's material and labour costs – typically well estimated using recommended per-square-metre benchmarks.
- Starting from the wrong base cuts both ways: insure at market price and you may end up in overinsurance; leave an old figure unchanged and you may end up underinsured.
What does market price measure – and what does it leave out?
Market price shows what a buyer would pay for the property today. It includes everything a buyer values: the plot, the neighbourhood, the view, the school around the corner, good transport links. The trouble is that none of these are damaged in a claim: after a fire, the land is still there, the location is still there – what actually needs rebuilding is the walls, the roof, the services and the finishes.
That makes market price the wrong yardstick for insurance: it measures something different from what the insurer has to restore after a claim. The same goes for the mortgage amount or the purchase price – neither reflects the cost of rebuilding.
Rebuilding value: the true yardstick for insurance
Rebuilding value answers a different question: what would it cost to rebuild the same building today, at today's material and labour prices – excluding the land. It depends on floor area, structure, fittings and the standard of construction. In practice it's easy to estimate: most policies today work from recommended per-square-metre values, which are adjusted as building costs move.
The same principle applies to contents as replacement value: not what the second-hand item would sell for, but what it would cost to buy the same thing new today – the method is covered in our article on estimating contents value.
City centre and small town: a mistake that cuts both ways
For a flat in a big-city centre, market price is typically far higher than rebuilding cost – most of the gap is location. Insuring at market price here means insuring above the real value, and paying for the excess brings no benefit: at claim time, the insurer pays no more than the actual damage.
In a small town, the picture can flip: the property's market price may be lower than what it would cost to rebuild today. Starting from market price here means insuring below the real value – and at claim time, the rule of proportional settlement can apply, meaning only a proportional share of the damage is paid out. Same mistake, two opposite consequences – and both are avoidable.
How to set it correctly – and keep it that way
At inception, a rebuilding estimate based on floor area, structure and fittings is the right starting point – the online calculator (in Hungarian) offers recommended values for this, and before you sign it is worth checking that the figure genuinely fits your house. For an unusual building – a special structure, high-end fittings – it's fine, and often necessary, to go above the recommended value.
After that, upkeep is what matters: indexation at renewal keeps the sum aligned with building costs, and after a major renovation or extension it's worth asking for an increase straight away rather than waiting. That way the policy moves together with the house – and at claim time, the sum insured is solid ground, not a dispute.
A question about your own home? Run the numbers in minutes with the online calculator (in Hungarian), or book a free 20-minute consultation →
