It's crucial to understand the ins and outs of your insurance policy, especially when it comes to protecting your property. One term that you might come across is the 'Average Clause'. Here's a breakdown of what it means and why it's essential for you to know.
What is the 'Average Clause'?
When you take out insurance for your business premises, you'll need to decide on the amount for which you want to insure the building. This figure should represent the total cost to rebuild your property from the ground up, including all associated fees. It's your responsibility to determine this amount; your insurance broker or provider won't decide it for you.
For instance, imagine you decide to insure your property for £250,000. However, the actual cost to rebuild it is £500,000. This discrepancy means you're only paying half the premium which is required to fully cover your building.
The 'Average Clause' comes into play here. It ensures that if you're underinsured, you won't receive a full payout in the event of a claim. In simple terms, you'll only get what you've paid for.
How Does it affect claims?
Let's consider a scenario: vandals cause malicious damage to your building, resulting in damages worth £25,000. You might assume that since your property is insured for £500,000, the damages would be fully covered. Unfortunately, that's not the case.
Due to the 'Average Clause', and given that you've only insured your property for half its actual value, you'd receive just half of the claim amount, i.e., £12,500. The remaining £12,500 would come out of your pocket.
The actual amount you receive could be even less than £12,500, as the calculation of the 'Average Clause' can be quite intricate.
How Can You Avoid the Pitfalls of the 'Average Clause'?
The best way to steer clear of any complications arising from the 'Average Clause' is to ensure your property is insured for its accurate rebuild cost. To determine this amount reliably, it's advisable to consult with a property professional who is well-versed in assessing rebuild costs.