What is underinsurance and why does it matter?
- Amy Lillington
- Sep 3, 2024
- 2 min read
Underinsurance is one of the most common and most overlooked risks in property insurance. Yet many property owners are unclear about what it actually means or how it happens.
Understanding underinsurance is essential if you want to ensure your property is properly protected.
What is Underinsurance?
Underinsurance occurs when your insurance policy does not cover the full cost of a loss.
For building insurance, this usually happens when the rebuild cost of a property has been underestimated. If the sum insured on your policy is lower than the true cost to rebuild your property from scratch, you are underinsured.
How does underinsurance happen?
One of the most common causes is confusion between market value and rebuild cost.
Some property owners insure their building for its market value, assuming this will be sufficient. While understandable, this is a mistake.
Your property should be insured for its rebuild cost — the total amount required to completely reconstruct the building if it were destroyed.
This includes:
Demolition and site clearance
Construction materials and labour
Professional fees
Reinstating the property to its original specification
Market value reflects what someone would pay to purchase your property. Rebuild cost reflects what it would cost to rebuild it. These figures are often very different.
What happens if you are underinsured?
If you need to make a claim and your property is underinsured, your insurer may apply what is known as the average clause.
This means your claim payment could be reduced in proportion to the level of underinsurance. Even a partial claim could result in you paying a significant portion of the costs yourself.
At a time when you are already dealing with disruption, this can create serious financial strain.
How to avoid underinsurance
The most effective way to protect yourself is to ensure your rebuild cost is accurate and up to date.
A professional rebuild cost assessment provides clarity and confidence that your building's insurance reflects the true cost of reinstating your property.
At RebuildCostASSESSMENT.com, our desktop assessments offer a reliable and cost-effective way to calculate your rebuild cost. Where a desktop assessment is not suitable, we will advise on the most appropriate next steps.
Watch Amy explain it all
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Don’t risk underinsurance – get assessed today
With accurate rebuild cost assessments from RebuildCostASSESSMENT.com, you can be confident your home is properly protected.
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