In Partnership with RebuildCostASSESSMENT.com
Confused by the fine print in your insurance policy? You’re not alone. Insurance documents can be full of jargon, and one term that often causes confusion is the average clause. But when it comes to protecting your property, it’s one detail that really matters.
If your property is underinsured, the average clause could significantly reduce any settlement you receive if you were to make a claim. That’s why understanding it isn’t just useful, it’s essential.
As specialists in Block of Flats Insurance and Landlord Insurance, we’re here to help, so you can be confident your cover accurately reflects your property’s needs.
What is the average clause in insurance?
The average clause is usually found in the fine print of building insurance documents. It’s a rule that insurance companies may use to make sure they only pay what they need to on claims, not more than they calculated they should. This clause is important when someone has not insured their property to its full value, which is commonly referred to as underinsured. When this happens, the insurance company will only pay part of any claims, based on how much the property was underinsured. For instance, if a property is only insured for half its value, the insurer might only cover half of any claim. This encourages people to insure their property for its full value.
By being on the ball and ensuring that the amount you’ve insured your property for matches its true value, you’ll know you’re safe if the worst were to happen.
Why a rebuild cost assessment is so important
A lot of property owners assume that the market value of their home is the amount they should insure the property for. But when it comes to insuring your home, it’s the actual rebuild value that matters, and that’s where the average clause comes in. The average clause is a big deal in the UK, and is catching a lot of property owners out. In fact, we’ve done the math:
9 out of 10 UK properties might have it wrong!
Recent research done at RebuildCostASSESSMENT.com shows that a whopping 76% of UK properties could be underinsured. And another 20% might be paying too much, effectively overinsuring their properties. That’s right, 9 out of 10 properties are missing the mark!
Obviously, being underinsured could mean you’re left with a much smaller claim amount than you expected. But there are other financial reasons to get the formula right. Many residential and commercial properties in the UK are overinsured. This means there could be room to save on those hefty premiums!
Many property owners use free online tools to work out their rebuild cover, but these often miss key details like listed status, materials, and site conditions.
With the right RebuildCost Assessment, whether you’re a homeowner, property investor, or commercial real estate mogul, you can be sure you’re paying the right premium and getting the right cover.
Why underinsurance is such a big deal
Put simply, underinsurance means there’s a gap between your property’s rebuild cost and the amount it’s insured for. This can cause problems if you need to make a claim. It often happens unintentionally, and can be the result of:
- Getting the figures wrong: Homeowners and businesses sometimes shortchange themselves, underestimating the rebuild or replacement costs of their properties.
- Saving on insurance costs: It’s tempting to save on premiums by insuring your property for a bit less than its value. But imagine the worst happens – that saving could end up costing you, big time.
- Ups and downs: As time rolls on, properties can go up or down in value. Market shifts, property improvements, inflation, they all play a part. Regular insurance health checks can prevent underinsurance and protect your assets.
The gap between actual value and insurance coverage is a growing problem around the nation. It’s time to ensure your property doesn’t become a statistic.
Calculating the average clause underinsurance formula
So, what do the average clause and underinsurance have to do with each other? Here’s the gist:
When you’re underinsured, the average clause means you don’t get a full settlement. The average clause lets insurers adjust their settlement amount in line with your underinsurance.
It’s important to understand the potential financial impacts for your property, so let’s break it down below:
Average clause calculation: Although insurance documents are rarely simple, the average clause calculation (or ‘average clause underinsurance formula’) is fairly easy to understand. It all comes down to the actual rebuild value (as opposed to the market value of your property):
(Amount Insured / Actual Rebuild Value) x Claim Amount
Still not sure what this means for your property? A couple of real-world scenarios will make it easier to understand.
Real-world average clause insurance examples
Using the formula for the average clause that we’ve just tackled, let’s take a look at some real-world examples of the clause in action:
Example 1: Meet Sarah, a savvy commercial property owner. She’s insured her place for the market value of £400,000, thinking that had her covered. But after a fire breaks out on her property, she’s staring at a rebuild cost of £800,000. With damages at £150,000, the average clause means the amount paid by her insurance company would equal a mere £75,000, thanks to a 50% underinsurance.
Example 2: Then there’s James. He regularly updates his residential property’s value and has invested in a reliable rebuild cost assessment. His last check put his home’s rebuild cost at £750,000, and so, he adjusted his insurance policy to reflect this. Facing a similar £150,000 damage, James is in the clear, with the full amount of his damages claim paid by his insurer.
Wrapping up the average clause in insurance
The average clause is a bit like the small print you find in any contract, easy to miss but oh-so-important. For all property owners, whether you’re a homeowner or a commercial property bigwig, it’s important to be aware of this little clause. And regular, reliable, and accurate rebuild cost assessments are your best bet against potential hiccups.
Don’t play the guessing game. Whether it’s personal memories or professional stakes on the line, a rebuild cost assessment with RCA (AKA reinstatement cost assessment) is your safety net.
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About Lansdown Insurance Brokers
Lansdown Insurance Brokers are specialists in Landlord Insurance and Block of Flats Insurance. We can provide policies tailored to your needs and offer guidance on the necessary cover required. Whether you’re a landlord, investor, or property manager, call the team on 01242 524498 or email enquiries@lansdowninsurance.com.
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