Could Your Property Be Underinsured?
Underinsuring your property can expose you to huge risks. In the event of a claim, being underinsured may result in economic losses. This is because insurers apply the “average clause” principle. Basically, their payout percentage will reflect the rate of underinsurance.
A closer look at average clause
It means that insurers MAY reduce the amount they pay out by the same percentage as the underinsured person. We use the word MAY because this is not an exact rule, but it is very likely. For example, if you insured a property for £250,000 but it would cost £500,000 to rebuild, then you are underinsured by 50%. If you made a claim for £10,000 worth of damage to your property, your insurer could only pay out 50% of the claim (£5,000) because you were only insured for half of the total rebuild value.
Why are properties underinsured?
Since Brexit, COVID, and then the Ukraine crisis, the costs of materials have increased dramatically. When calculating your rebuild costs, you need to consider:
- Clearance fees
- Surveyor costs
- Architect fees
- Planning permission
- Increased cost of material
- Increased labour charges
A 2019 report by rebuildcostassessment.com found that around 80% of policyholders are insured for less than their property is worth, leaving them vulnerable to significant financial strain.
Rebuild cost vs Market value
Often, people make the mistake of insuring their property at its market value. What you should be insuring your property for is the rebuild or reinstatement value. That is the cost to rebuild your property from scratch, including all groundwork, surveyors and architects’ fees. Prices change, so don’t simply renew your property insurance without making any changes.
With the risk of underinsurance being an ever-increasing issue, we have gained access to a company that 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 coverage, should the worst happen. This is backed by an insurance guarantee. 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.
If you think you may be underinsured, please get in contact with a member of our team on 01743 770500, who can provide more information on how we can help you.
