Can You Afford For Your Property to be Underinsured?

The consequences of your property being underinsured can be potentially life-altering, causing significant financial losses. Which is why at 1st Choice we have partnered with is the online trading style of Rebuild Cost Assessment Ltd, an organisation ‘Regulated by RICS’. Their vision is to eliminate issues around underinsurance and the effects it can cause on people’s lives and, in some cases, companies going out of business. According to statistics from in 2022, more than 9 out of 10 buildings in the UK were insured for the wrong amount, 83% being underinsured and 13% being overinsured.

Why are properties underinsured?

Not knowing the rebuild value of the property is the most common reason properties continue to remain underinsured. This is because rebuild costs are more difficult to determine than market value. Since Brexit, COVID-19, and the war in Ukraine, the cost of goods and materials has increased dramatically. The rebuild cost of your property is the amount it would cost in labour and materials to completely reconstruct it if it were destroyed beyond repair.

When calculating your rebuild costs, you need to consider the following key factors:
• Property type
• Increased costs of materials
• Increased labour charges
• Clearance fees
• Surveyor costs
• The age of the building
• Architect fees

Rebuild Cost vs Market Value

It is important to understand rebuild costs are different from your property’s market value, which is the amount the property would sell for on the current market. When obtaining insurance for your property, you need to make sure you are insuring the rebuild or reinstatement value. If in the unfortunate event you had to make a claim, being underinsured could result in detrimental losses for your business. This is because insurers could apply the ‘average clause’ principle. Their payout percentage will reflect the rate of underinsurance.

What is the average clause?

The average clause means insurers could reduce the amount they pay out by the same percentage as the underinsured person. Some insurers may apply the average clause to a claim where they believe there is inadequate cover in place. The average clause is there to try to ensure customers have sufficient coverage and declare the true value of the property.

How does the average clause work?

If you insured your property for £350,000 but it would cost £700,000 to rebuild, then you would be underinsured by 50%. This means that if you made a claim for £150,000 worth of damage to your property, you may think because you insured your property for £350,000, you would be entitled to receive the full £150,000 claim. Unfortunately, due to the average clause, your insurer would only pay out 50% of the £150,000 claim, which would be £75,000, as you were only insured for half of the total rebuild value. can provide either a desktop or onsite assessment from a professional expert. As the product is regulated by RICS (Royal Institute of Chartered Surveyors), the outcome should give you peace of mind that the property has the correct level of cover, should the worst happen. The report will also indicate how long it will take to rebuild the property, which helps to determine whether you have an adequate business interruption period on your policy.

At 1st Choice Insurance, we can offer this service at a discounted rate for our clients. If you think you may be underinsured or would like an assessment, please contact a member of our team on 01743770500 where we will be more than happy to assist you.

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