Market value policies

Our Experts Answer:

At claim time, market value policies generally make a deduction for wear, tear and depreciation of the structure of the home. However this depends on the policy definition of “market value” and also the basis of settlement within the policy wording.
Unfortunately, as you have discovered, market value policies can be a costly exercise in the event of a total loss, because as the home ages, the amount of depreciation etc can also increase and become very high.
In comparison, replacement value home policies do not deduct wear, tear or depreciation, so in a total loss situation (and assuming the sum insured is sufficient), the insured should be able to rebuild a comparable home, and therefore attract a similar rent again.
The question itself seems to suggest that the reinstatement or repair of the home should provide a guarantee on what rental amount can be obtained. There are many variable factors which drive rental income, but what you might receive comes down to what you ask for and what someone is willing to pay at that time. Regardless of whether you insure for market or replacement value, rental income is a separate issue with no relevance to the sum insured of the home.
Please note some policies do include a loss of rent benefit (some for free but some charge additional premium), which reimburses rent lost due to an insured event. If your policy included (or you purchased) this benefit, you may still be able to claim for rental income lost between the fire occurring and the claim settlement.