The Average Clause explained by RebuildCostASSESSMENT.com What Is the average clause? The average clause is a standard condition in many property insurance policies. It comes into play when a policyholder underinsures their property—that is, when the sum insured is less than the actual rebuild cost of the property. If a claim is made under these circumstances, the insurer can reduce the payout proportionally, reflecting the degree of underinsurance. For example: Rebuild Cost: £200,000 Sum Insured: £100,000 (i.e., 50% of the actual rebuild cost) Damage Sustained: £50,000 In this scenario, because the property is insured for only 50% of its rebuild cost, the insurer may apply the average clause and pay out only 50% of the claim, resulting in a £25,000 payout. The policyholder would need to cover the remaining £25,000 themselves. Why does this matter? Underinsurance can lead to significant financial shortfalls when claims arise. Many property owners mistakenly insure their property based on its market value rather than its rebuild cost, leading to potential underinsurance. The average clause ensures that policyholders bear a fair proportion of the risk when they choose to underinsure. https://lnkd.in/eyu9fKBT
Understanding the Average Clause in Property Insurance
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