We wanted to bring to your attention a very specific area of insurance which often gets overlooked and can cause some big issues when it comes to claims.
It is really important that the rebuild/reinstatement sums insured are accurate to ensure payments are not proportionally decreased in the event of a claim and under insurance. For example, if the building was insured for £400,000 but in fact it should have been £800,000, the insurer would only pay 50% of any claim – so for a £100,000 claim, only £50,000 would be paid.
Even though the insurer does index link your buildings sums insured at each renewal, this may not be sufficient and should not be relied on. Index linking is not an ‘exact science’ as it is calculated on an average basis and therefore does not reflect changes in all rates as labour, materials and regional trends differ.
For the above reasons, we strongly recommend having a reinstatement survey carried out at intervals of 3-5 years to ensure the figure is kept up to date. Insurers, will generally agree to waive their average clause if a valuation of the building has been carried out by a RICS surveyor within 3 years of the loss and adjusted annually in line with RICS’s index linking figures.
We hope the above helps outline the dangers of under insurance and why we would strongly recommend you have a survey carried out as soon as possible.