It is vitally important that you insure your Office Contents for the full replacement value and in the case of your Office Building the full rebuild value. Office policies are commonly subject to what’s known as the “Condition of Average” Clause. This is applied when a claim occurs and the sum insured under the policy is below the actual value of the item at risk. When this happens, Insurers will apply “average” to the settlement of the claim, effectively reducing the payment made by the percentage amount of underinsurance. The sum insured is the maximum amount the insurance company will pay out, if everything you own is totally destroyed. Therefore, the sum insured must adequately reflect the true value at risk. The following is an example of how the “Condition of Average Clause” is applied:
How does this work in practice?
Your Office Building has a rebuild value of £1,000,000 but you’ve only insured it for £800,000 and you suffer a partial loss of £400,000. You are only 80% insured (£800,000 insured Vs £1,000,000 true rebuild value) and will only be able to claim 80% of your £400,000 loss back from your Insurer which means you would be £80,000 out of pocket!
We have many years experience dealing with Office Insurance and the pitfalls of underinsurance. Contact us on 01837 650030 if you need any help or guidance with your sums insured.