Archived article. For our latest overview, read Property renewal: is your rebuilding value still appropriate?
Are you underinsured?
Maybe there’s a time and place for jargon but when it comes to your buildings insurance, there’s no room for misinterpretation.
Rebuilding costs can change over time. Reviewing your insured values with your broker and an appropriately qualified professional can help identify where an assessment needs updating.
You’ve likely already heard some terms flying around, so we’ve taken the liberty of spelling these out in clear language, so you know exactly what they mean. Jargon. Busted.
Sum insured
When you insure a building, you are responsible for determining the amount you want to be covered for, or the Sum insured, based on how much it would cost to rebuild your entire property from scratch. Your insurer will decide how much to charge you for the insurance based on this amount.
The building’s sum insured is the maximum amount of money your insurer will pay out if you claim on your buildings insurance. This includes the cost of professional fees such as architects, demolition costs and labour. The sum insured of your property can be very different to the market value of your property.
Average clause
If you insure your building for less than its rebuilding cost, the average clause determines how much your insurer will pay out when it comes to making a claim.
For example, if you insure a property that would cost £600,000 to rebuild for £300,000, you are underinsured by 50%. Due to this, the average clause dictates that whenever you claim on your policy, your insurer will only pay out a maximum of 50% of any claim you make.
Where an average clause applies on this basis, the reduction may also affect a partial-loss claim. The policy wording determines the calculation. Therefore, if you claim for £5,000, you will receive a maximum of a £2,500 payout.
Note: This is a very simple example, you can be underinsured for any amount and the percentage that you are underinsured by will be applied to every claim you make – no matter how small the claim.
Index linking
If index linking is applied to your policy (this can be done at no extra cost to you), your sum insured will increase at each annual renewal to match inflation. Index linking does not establish that the starting value was correct or account for every alteration to the building.
How to avoid underinsurance
As well as reviewing your buildings insurance annually, it’s important to review your insurance any time you make a significant change such as a renovation or, for commercial buildings, during times of peak stock levels. At Brokers Inc we work with RebuildCostAssessment.com to provide you with an accurate valuation of your property, at a discounted rate. To find out more, just give us a call on 0333 577 1477.
Https://www.rebuildcostassessment.com/commercial-property