Underinsurance terminology

Find out exactly what it means when it comes to underinsurance

Underinsurance terminology

Before we go into exactly how you can avoid becoming underinsured and falling into severe financial losses in the event of an incident, let’s examine some of the terminology you might be faced with.

Buildings sum insured

The ‘buildings sum insured’ refers to the cost of rebuilding the property if it is completely destroyed, including demolition, debris removal, local authority and professional fees, which can add up to 15% to the overall costs so shouldn’t be neglected.

The average

The ‘condition of average’ in underinsurance states that the landlord bears a proportion of any loss if the property was insured for less than its full rebuild value.

The insurer assesses the actual rebuild cost to be £200,000, therefore only 50% of the actual value is covered. In this scenario the insurer applies ‘average’ which means only 50% of the £50,000 claim would be paid, leaving the landlord with £25,000.

The market value

The price at which the property has been valued on the real estate market.

The rebuild value

This is the most common reason why properties remain underinsured, because rebuild costs are more difficult to ascertain than simple market value.

Loss of rent

Covers the money you would lose if your property became uninhabitable due to an insured event that would force your tenants to move out.