The average clause
The Average Clause is a concept in insurance that’s crucial to understand, particularly when insuring buildings. Here’s a simplified breakdown:
What is the Average Clause?
- The Average Clause is a condition in your insurance policy that affects the amount you’ll receive if you make a claim.
- Its purpose is to ensure that you get compensation relative to what you’ve insured your property for, compared to its actual value.
How Does It Work?
- Setting the Sum Insured: When you insure a building, you decide the amount (sum insured) that represents the cost to rebuild it from scratch.
- Example: If your building should be insured for £1,000,000 but you only insure it for £500,000, you’re only covering half of its value.
- Impact on Claims: If you make a claim, the Average Clause ensures that your payout is proportionate to how much you’ve underinsured. In this example, if you make a small claim for £10,000, you might only receive £5,000 because you’ve only insured half the building’s value.
Why Is It Important?
- Potential Pitfalls: The Average Clause means that even if you think you’re insured adequately, underinsuring your property can lead to receiving significantly less than expected when you make a claim.
- Avoiding Trouble: The only way to ensure you’re fully covered is to accurately calculate your building’s rebuild cost, usually with the help of a professional. This can prevent the financial shock of having to cover part of a claim out of your own pocket.
The Takeaway
- The Average Clause emphasises the importance of insuring your building for its full rebuild cost. Underestimating this can lead to under-compensation in the event of a claim. To avoid this, seek a professional assessment of your property’s value and consult with your insurance broker.
At Tricketts Insurance Brokers we work with RebuildCostAssessment.com. Since 2018, they’ve assisted over 100,000 property owners in ensuring their buildings are adequately insured. Of those, 83% were found to be underinsured, which could have resulted in significantly reduced payouts on any claims made under their policies. Additionally, 13% were overinsured, leading to unnecessarily high insurance premiums.
Don’t fall victim to the dreaded ‘Average Clause.’ Discover a fast and affordable way to avoid underinsurance. Get in touch with Tricketts Insurance Brokers on 01706 212231 to ensure your property is properly protected.