Imagine going to the shops and buying a box of cereal. You pay £2.00 for it and on the way home it falls out of your bag, into a puddle and is ruined.
To put you in the same position that you were in before your loss, you would need to spend a further £2.00. This is the reinstatement cost.
Now, imagine if you bought a laptop in 2008, it had a 50GB hard drive and cost you £750. If you dropped it in the same puddle (careless I know) and went out to buy a new one, you would probably only pay £400. This is the because, to get the same type of computer is cheaper 2 years later.
Now, you have a property that you paid £250,000 for and you are looking for a commercial building insurance quote. Do you insure for the purchase value? the answer is no. You may have got a good deal, it may be an old Grade II listed property or it may be that you have paid a premium for the property because it is in a nice area. So, in this case if your building is destroyed by fire, it may cost £400,000, £200,o00 or any other amount.
The problem is, that you need to find out exactly what it would cost to reinstate the property. The only way to be sure, is to get a valuer to come and see the property and give you an accurate reinstatement figure. There are so many different factors that affect this that a business insurance company cannot give you any sort of help or advice, you need someone to come and see the property.
A quick valuation may only cost you a few hundred pounds and if it shows that you have been insuring for the wrong figure then it may save you money in the long run.
A very (and I mean very) rough rule of thumb, is £100 per square foot for modern industrial (block and steel) premises and £200 per square foot for other properties. This cannot be applied to properties that are listed, of non standard construction or built prior to 1900. Then, you definitely need to get an expert involved.