While every property owner has an interest in ensuring that the reinstatement or rebuilding value of every property they own has been assessed, the fact is that many buildings are under-insured in terms of reinstatement costs.
This may not bother some property owners and landlords in the short term, as being under-insured obviously means that they pay lower premiums.
And everyone likes to save themselves money.
However, when a major problem does arise, the impact of an insurer applying what is known as ‘average’ to the claim will generally make them reconsider that view.
To put that in its simplest terms, if the actual reinstatement cost of a building is £2m, yet the insured value is £1m, the insurers will be quite within their rights to impose a ‘proportionate settlement’ for any claim.
Meaning that as the property was under-insured by 50%, a valid claim for £200,000 worth of insured damage would only lead to an insurance payout of £100,000, leaving the property owner substantially out of pocket.
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