When Things Go Wrong, What Happens When Adequate Insurance Is Not In Place?

Underinsurance – It is important that the sums insured for your property represent the full reinstatement costs including (for example) mews, extensions, architectural/protected features (where applicable) and also additional costs such as debris removal, professional fees, VAT etc. In order to ensure that your current sums insured are kept in line with the increased costs of rebuilding, your Insurers may automatically increase your buildings sum insured by e.g. 5% at each renewal (i.e. indexation).

However, it remains the sole responsibility of the policyholder to ensure that such sums are adequately stated and regularly updated. The general (underinsurance) policy conditions state: [It should be noted that the Buildings, Contents & Loss of Rent sums insured are subject to an Underinsurance Condition (check your policy wording (commonly known as the Average or Underinsurance Clause)).];-

Whenever a Sum Insured is subject to Underinsurance, if at the time of any Damage such Sum Insured is less than the total value of such property, then the Insured shall be considered as being their own insurer for the difference and shall bear a rateable share of the loss accordingly.

So, if you are deemed 50% underinsured at the time of a loss, your claim will/may be reduced proportionately by that 50%. As property rebuilding costs (and rental values) are subject to constant change, and have been increasing steadily for 7+ years now, we strongly advise that you take the time to validate your Building (and separately Contents & Loss of Rent) Sums Insured with a qualified property valuer to ensure that the reinstatement value(s) on your insurance policy is/are up to date and adequate as it is your duty to do so. It is anticipated that rebuild values will increase substantially in 2021 due to global materials shortage and Brexit related causes.