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Are you Under-insured? If so, it could have a devastating effect on your business...

Beware, if your sums insured are not adequate, in the event of a claim, you could be penalised by the Average condition. This means, the amount paid by the insurer in the event of a partial loss is reduced in direct proportion to the degree of under insurance.

For example, if your buildings are valued at £1,000,000 for insurance purposes, but you insure them for £500,000, in the event of a loss, only 50% of your claim will be paid, e.g. if you submit a claim for £50,000, the insurer will pay only £25,000.

As you can see from this example, the fact that the total value of the claim is less than £500,000 is irrelevant. Average does not apply to total losses, but if your premises are totally destroyed by fire, for example, the maximum the insurer will pay is the sum insured. So, if you have set this lower than the current rebuild cost, your claim payment won't meet this in full.

Please be aware that Average will apply even where under insurance is unintentional. Therefore, if you haven't kept a regular review, you could be underinsured without realising it. We therefore recommend that our clients keep a close check on their sums insured, but in addition:

  • Obtain a professional buildings valuation every five years.
  • Carry out their own regular assessments to record the amount of stock and contents owned or in their control.

Any changes should then be referred to Knowlden Titlow so that we can update the respective insurer.

Published September 2011

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