The Average Clause! One of those things that's not so easy to explain. And the Clause itself can cause real trouble when it comes to setting sums insured on buildings or claims disputes with insurers!
No fear! We've put together a short animation, which explains what the 'dreaded' Average Clause is, why it doesn't always work the way you'd expect and (of course) what can be done about it.
Hope it helps!
Insurance is a contract. And like most contracts there are all kinds of clauses and conditions that go with it.
When it comes to insuring a building, there is one clause in particular that is important to understand, because it can significantly affect the amount paid if you claim.
That clause is ‘The Condition of Average’ or more often known simply as ‘The Average Clause’. Or as we like to call it ‘The dreaded Average Clause’
So, what is the ‘Average Clause’? Let’s try and keep it simple…
When you insure a building, you have to decide how much to insure it for. This is your responsibility. Your broker or insurer cannot tell you this amount.
The amount to insure for is the cost to rebuild the property from scratch, including fees etc. Your insurer will decide how much to charge you for the insurance based on this amount.
Now let’s say you insure your building for £500,000, but the amount you should have insured it for is £1,000,000. This means your insurer is only getting half of the premium they should to fully cover the building. So, you wouldn’t expect them to pay out £1,000,000 if the building was totally destroyed, would you?
The Average Clause basically makes this clear. It’s the insurers way of making sure you only get what you’re paying for.
However, there is more to the Average Clause than just this!
If there was a small claim, let’s say for a vehicle crashing into your building, which causes £10,000 of damage, you might think that because you’re insured for £500,000 that you’d be fully covered right?
Like we said, the Average Clause makes sure you only get what you’re paying for. So, AT MOST, for a small claim like this, you would only get £5,000 and you would have to pay the other £5,000 out of your own pocket! Remember, in our example you only insured your building for half of what it should be, so you would only get half of the claim!
And notice we said AT MOST. We’ve made the Average Clause very simple for our example, but you could actually end up receiving even less than £5,000, because the way Average is calculated can get very complicated.
The only way to avoid the ‘dreaded’ Average Clause is to make sure you insure your building for the right amount. And the only reliable way to do this is to use a property professional who knows all about rebuild cost.
Speak to your broker today about RebuildCostASSESSMENT.com, the affordable, professional building insurance valuation experts and avoid falling victim to the dreaded Average Clause.