Value at risk Surveys
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Under-insurance is a common problem that insurers encounter when dealing with buildings insurance claims. Essentially, under-insurance can be defined as a shortfall between the amount of cover requested at the time a policy is taken out, and the actual cost of replacement or rebuild following a loss. Although Index linking will increase your sum insured each year, if the initial figure is wrong, no amount of index linking will correct it.
Following a claim for an under insured building, insurers may choose to apply “average” to the claim, resulting in them only paying out a proportional amount. Most policies contain an average clause which comes in to effect at the time of a loss. Here is an example;
If you own a home which should be insured for £250,000 but you only insure it for £125,000 you are therefore only insuring 50% of the true rebuilding value, insurers would in turn only pay 50% of any claim. So, if you made a claim for £50,000 following a loss (a flood for example), insurers would only pay £25,000 and you would have to find the remaining £25,000.Most policies contain an average clause.
In certain circumstances insurers have been known to ‘void’ a policy (cancel from the start date) and pay nothing towards the claim at all.