The Average Clause in Property Insurance

"I did not insure my property fully and was penalised by my insurers!"

"I forgot to add some additional items I bought onto my household policy and then my claim payment was reduced"

"What happens if I do not insure the value of my property properly?"

I am sure most of you will have heard at least one of the above statements in your years of dealing with either your house, let property or business insurance. Some of you may have had your own claim payments reduced because of these reasons and are feeling a little hard done by...

So for those of you that dont know what the average clause is, let me explain; the average clause is a condition written into most property insurance contracts which simply means insurers are entitled to reduce claim payments if the risk has not been insured to its full value.

The proper insurance definition is "If an average clause applies to your policy and your property is under-insured, the insurer may –  in the event of a claim – reduce the amount of the settlement in proportion that reflects the under-insurance"

You may feel this is just a typical insurer clause so they can get out of paying money I hear some of you say - however it isn't; put yourself in the insurers position for one moment - I as a customer ask you to insure my house for £50,000, you agree to take on this risk, but you want £100 for doing so (your insurance premium). A few months later, a fire burns down my house and it costs £100,000 to rebuild - I approach you as my insurer and say "where's my £100,000 to re-build my house?".....what would you say....???

The answer would be, "I shall give you £50,000 as that is what you asked me to insure the house for, however, if you had asked me to insure your property for £100,000 I would have asked for £200, and since you have only paid me half the money, I shall pay half your claim"

Obviously, had the property been insured for £75,000, and the appropriate premium paid, then that amount would have been the claim payment.

There are two key lessons to be learned here, nay three;

firstly, ensure you get your sums insured correct, both contents, buildings, stock, or any other property, get valuations done if necessary,. or simply go round each room totalling up the value to give you a rough idea;

secondly, never forget that an insurance contract is just that - its a contract, a legal document - and it should be treated as one; you have seen the policy booklets, they are there for a reason - I am sure you didnt just sign the documents when buying the house itself... why risk it by not reading the fine print of the contract which protects your investment??

and finally, if you dont want to spend time reading the fine print, buy your insurance through a broker - they will give you all the help and advice you need, and provide substantially better value for money when buying insurance.