Underinsurance means your policy’s sum insured is set below the true value of what you are covering. When that happens, the average clause can reduce your payout in proportion to the shortfall, sometimes sharply. Getting the sums right is one of the simplest ways to protect a claim.
What underinsurance is
If your buildings sum insured is £200,000 but the rebuild cost is £300,000, you are underinsured by a third. The same logic applies to contents where the total value of possessions exceeds the sum insured.
How the average clause bites
The average clause applies the same proportion to any claim. In the example above, a £30,000 claim would be paid at two thirds, or £20,000, because you only insured two thirds of the value. You absorb the rest, even though the event itself was fully covered.
Getting rebuild costs right
For buildings, base the sum insured on full rebuild cost, not market value or the price you paid. Use a rebuild cost calculator or a professional assessment, and review it after extensions or improvements. Our guide to reading your policy shows where the sum insured is stated.
Contents too
Walk room by room and value possessions at replacement cost, including clothes and kitchen contents. Many policies offer an indexed or blanket sum insured that rises automatically, but check it still fits your situation.