Having your property correctly valued is really important, and the effects of being underinsured can be detrimental.
This is because of the ‘Average Clause’.
What is the Average Clause?
The Average Clause means that the amount paid out to you in the event of a claim will be reduced in proportion to the amount that you are underinsured.
If your property is only insured to 75% of its value, then the property is underinsured by 25%. Therefore, the claim value will also be reduced by 25% in line with this.
For example, your property has a buildings sum insured of £300,000. The damage done to the property amounts to £60,000. However, when the claims investigation begins, it is found that the rebuild cost of your property is actually £400,000. Your property is underinsured by 25%. Therefore, the Average Clause means that the claim payment will also be reduced by 25%, from £60,000 to £45,000, leaving you with a £15,000 deficit that you will need to cover yourself.
What factors could cause me to be underinsured?
You must make sure that your buildings sum insured is for the cost to rebuild the property. You must also consider that over time, and due to a number of factors such as the increasing cost of materials, the rebuild cost of your property can increase, and so although you may have been correctly insured previously this might no longer be the case.
So what do I do?
You should always chat to your insurance broker at the time of renewal, but it can also be worth contacting them in between renewals to check this. To check your sums insured you should have your property professionally assessed by a RICS qualified surveyor.
To find out more about underinsurance, contact us on enquiries@rkhenshall.com or 01270 758070.
