As a property owner or landlord in Luton, you’ve likely invested significant time, money, and effort into your property and portfolio. But one often overlooked risk could be putting your assets in jeopardy: underinsurance.
What is Underinsurance?
Underinsurance occurs when the insured value of a property is less than the actual cost to rebuild or replace it. The actual cost takes into account how much it would cost to rebuild the property from scratch, including materials, labour, professional fees, and compliance with current building regulations, not just the market value.
It’s an issue that’s affecting more property owners than ever before. According to RebuildCostASSESSMENT.com, around 80% of UK properties are underinsured, with the average shortfall exceeding £500,000. In real terms, this means many landlords and property investors could be left severely out of pocket in the event of a serious claim.
Why Underinsurance Matters in Luton
Luton has a growing property market, with regeneration projects, increased demand for rental accommodation, and commercial expansion contributing to rising building costs. The BCIS House Rebuilding Cost Index shows that rebuilding costs have risen steadily year-on-year, and with inflation still impacting materials and labour, this trend is likely to continue.
If your property insurance policy hasn’t been reviewed recently, or if you’ve carried out renovations or extensions, you could be at risk of underinsurance without even realising it.
The Average Clause
Underinsurance can trigger something called the “average clause” in your insurance policy. This means if you make a claim, your insurer can reduce the pay-out in proportion to how underinsured you are.
For example:
If your building should be insured for £1 million but is only insured for £700,000 (i.e., 70%), then any claim pay-out could be reduced by 30%. So if you suffer £100,000 of damage, your insurer may only pay £70,000, leaving you to fund the rest.
Common Causes of Underinsurance
- Relying on outdated rebuild costs
- Confusing market value with rebuild cost
- Not accounting for recent renovations or upgrades
- Skipping professional valuations
- Not reviewing cover annually
What Can Luton Property Owners Do?
As a local insurance adviser with deep knowledge of the Luton market, consider the following steps to ensure your property is properly protected:
- Obtain a professional rebuild cost assessment – This ensures the sum insured reflects true rebuild costs, including demolition, clearance, and professional fees.
- Review your insurance policy regularly – Annually at minimum, or after any significant property changes.
- Work with a broker who understands the local market – We know Luton and we understand the challenges property owners here can face.
- Don’t just accept the default renewal – This may not keep pace with local cost increases.
Peace of Mind Through Proper Protection
Underinsurance is a financial risk that could severely impact your future plans, so it’s critical to get your insurance right, no matter what kind of property you own.
At Coversure Luton, we can help property owners and landlords take a proactive approach to risk, and check their policy includes the cover they need to protect what matters most.
Contact us for a review of your property insurance, and make sure your investment is properly protected.
FAQs
Q: If a property is underinsured and the owner needs to make a claim, how would their claim be impacted?
A: If a property is underinsured, the insurer can revert to the wording in the policy to decide by how much it is. If it falls over the specified underwriting criteria, then average clause will apply, meaning that they can choose to only pay up to the declared value and in some instances reduce the payment by the amount it is underinsured. It is always worth noting to pay attention to the policy wording.
Q: What is an average clause?
A: In insurance, the average clause is a policy condition that can apply when the insured property is underinsured; that is, when the sum insured is less than the actual value of the property. The claim pay-out can then be reduced proportionately to reflect the shortfall in coverage.
Q: Can someone increase their sum insured mid-policy if they realise they are underinsured?
A: Yes, you can always increase the sums insured mid-term, this can be subject to an additional premium.
Q: How does someone calculate underinsurance/figure out what their insurance sum should be?
A: There are 2 ways to figure out the correct sum insured, you can log in to the ABI’s website and measure the dimensions of each room and input into their calculator, that will then work out what the rebuild cost should be, or, you can pay for a rebuild cost survey which is insurer approved and is valid for 3 years.
