Your underinsurance jargon buster

Are you underinsured?

Did you know that in 2022, fewer than one in ten properties are properly insured? To ensure your cover is right, it’s worth having a conversation with your broker or insurance provider.

You’ve likely already heard some terms flying around, so we’ve taken the liberty of spelling these out in clear language.

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.

Average Clause

If you insure your building for less than it’s worth, 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.

No matter how small the claim is, you will always be subject to that 50% limit. Therefore, if you claim for £5,000, you will receive a maximum of a £2,500 payout.

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. This means that your policy will still account for the inflationary rise in the cost of materials and labour.