Did you know that 9 out of 10 buildings are insured for the wrong amount? ¹
If you are over insured, you might be paying more for your premium than you need to. If in doubt, talk to your local Lloyd & Whyte Community Broker who will be able to advise you around arranging the correct level of Buildings Insurance.
If you are underinsured, you could run into difficulties should you need to make a claim. This is because insurers apply the Average Clause which means that if a property is underinsured you might have to pay for the costs of repairs and renovations yourself.
What is the Average Clause?
The “average clause” is a key concept in property insurance, particularly relevant when it comes to claims. This clause ensures that if a property is underinsured (insured for less than its actual value), the insurance company will reduce the amount it pays for any claims in proportion to the underinsurance. The average clause is primarily aimed at preventing policyholders from deliberately or inadvertently insuring their property for less than its full value, which would result in them paying lower premiums.
How does the Average Clause work?
If a property is insured for less than its actual rebuild value, the average clause applies in the event of a claim. (It’s worth noting that the rebuild value is different from the market value of a property and needs to take into account the cost of labour and materials). With the average clause, the insurer will proportionally reduce the payout based on the ratio between the insured value and the actual value of the property.
Example of the Average Clause
Suppose a property has a rebuild value of £200,000 but is only insured for £100,000, meaning it is underinsured by 50%. If there is damage to the property that would cost £50,000 to repair, the average clause will come into effect. The insurance company will reduce the payout by the percentage of underinsurance.
Since the property is only insured for 50% of its actual value, the insurer will only pay 50% of the claim. In this case, the policyholder would receive £25,000, and they would have to cover the remaining £25,000 out-of-pocket.
Avoiding the Average Clause Pitfall
To avoid the complications of the average clause, it is essential for you, as the policyholder, to regularly review and update your insurance policy. This will help you make sure it accurately reflects the current rebuild value of your property. This can be done through regular rebuild cost valuations, particularly after major renovations or changes to the property that might affect its overall value.
The Benefits of Buildings Insurance
When you’re arranging Buildings Insurance, a tailored policy can provide you with cover that properly protects your asset. It specifically covers the structural components of a building, such as walls, roofs, windows, and floors, as well as permanent fixtures like bathrooms and kitchens. An accurate and appropriate policy can provide financial protection around disasters and damage caused by fires, theft, or water damage. Without adequate coverage, repairing or rebuilding a home or structure after a disaster can be financially crippling.
Protection Against Unforeseen Events
Besides covering major disasters, Buildings Insurance also covers a range of less severe but equally costly damages. For example, escape of water due to burst pipes, or electrical malfunctions can cause significant damage to a property. Without insurance, you would need to pay for repairs out of pocket, which can be challenging if the damage is extensive. Buildings Insurance typically covers the cost of repairing or replacing damaged components of the building, easing the financial stress of these unexpected repairs.
Whether you own a residential or commercial property, arranging Buildings Insurance can be a complicated process. Our team of local community brokers are on-hand to advise you on how to arrange Buildings Insurance that insures your buildings at the appropriate level.