What Is Underinsurance?
Underinsurance occurs when the value insured is less than the actual cost of replacing or rebuilding the insured asset. This applies to homes, commercial buildings, stock, equipment, and business interruption cover.
Example: If your building is insured for £500,000 but the actual rebuild cost is £800,000, your insurer may only pay out a reduced portion of your claim based on the “average clause.”
Why Is Underinsurance So Common in the UK?
- Outdated Valuations: Costs rise but policies stay unchanged.
- Market Value Confusion: Rebuild cost is not the same as sale value.
- DIY Policy Setup: Without expert guidance, errors creep in.
- Business Growth: Expanding stock or assets isn’t always reflected in policy updates.
The Consequences of Underinsurance
- 💸 Reduced Claim Payouts
- ⏱️ Claims Delays & Disputes
- 🏚️ Unrecoverable Losses
- 🔁 Stalled Rebuilding & Repairs
Real-Life Example
A Manchester retailer suffered a warehouse fire. They insured their building for £500k and stock for £100k but the actual rebuild and replacement cost was over £900k.
The insurer applied the average clause, covering only two-thirds of the loss. The business faced a six-figure shortfall and delayed reopening by 8 months.
How to Check If You’re Underinsured
Here are some questions to ask yourself or your business:
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🏠 When was the last time your property was professionally valued?
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📈 Do you know the actual rebuild cost — including fees and current materials/labour prices?
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🏢 Have you added stock, machinery, or assets recently?
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📦 Does your business interruption policy reflect realistic recovery periods and turnover?
If you’re unsure, it’s time to get a professional rebuild valuation.
At Premier Insurance, we’ve partnered with RebuildCostAssessment.com a trusted UK provider of property assessments. Their reports are detailed, compliant with RICS standards, and ideal for insurance purposes.
⚡ When booked through Premier Insurance, you’ll receive a significantly discounted rate on your rebuild cost assessment helping you stay fully protected at a fraction of the cost.
A rebuild valuation is one of the most important steps you can take to avoid underinsurance. Don’t rely on guesswork let the numbers guide you.
How Premier Insurance Can Help
- ✅ Free Policy Reviews: We’ll assess your current cover and risks.
- 📊 Valuation Guidance: Access to rebuild cost assessments and content valuations.
- 🧠 Expert Advice: Our brokers provide tailored recommendations.
- 🔁 Ongoing Policy Management: We help you stay protected as your business evolves.
Top Tips to Avoid Underinsurance
- Get a professional valuation every 3–5 years.
- Don’t auto-renew your policy without reviewing it.
- Understand how the average clause works.
- Inform your broker of major changes in your property or business.
- Base sums insured on rebuild/replacement costs, not market value.
Conclusion: Protect Your Future
Underinsurance may seem like a small oversight until it costs you everything. With the right advice and accurate cover, you can protect your assets, livelihood, and peace of mind.
At Premier Insurance, we’re here to help you avoid nasty surprises when it matters most.
📞 Need Help? Let’s Talk.
Book a free policy review with one of our expert brokers today.