The Law of Averages

The Building Cost Information Service (BCIS) estimates that almost 80% of commercial properties are underinsured by over half what they should be. We want to make sure that you’re not among this figure at McClarrons, with an overview of underinsurance, and how “the condition of average applies”.

There is an underinsurance trap which captures 80% of businesses, leaving them far shorter on a claims settlement than the sum they’d anticipated.

It’s a common mistake, but a costly one – determined by the ‘condition of average’ clause. This clause is used by the insurance provider to work out how much should be paid out in the event of a claim. If you have valued your business contents at £50,000, and you suffer £50,000 worth of damage in a claim, then there’s not an issue.

The problem arises when you’ve only insured your £50,000 worth of contents for £25,000. Here, you have underinsured by 50%. This means that in the event of a claim, any payout calculated on the insured value is going to be halved by the insurer, resulting in you receiving only £12,500. Any money saved from underestimating your contents value will soon be swallowed by the difference.

Whether or not you feel confident that you’ve got your sums right, there are plenty of online tools that can be used as a guide. Speak to the team at McClarrons who can help you find the true value of your assets.

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