What Does Buildings Sum Insured Mean? An Important Insurance Loophole
We must point out the very important condition of average that will apply to any insurance policy. This means that you must insure any item to its full value. Failure to do so can result in that item being affected in the event of a claim. If you were to insure an item for 50% of its total value, and that item suffered a loss or damage, the total mount claimed for will be reduced by 50% of the cost of the claim.
Please note the following basic building sum insured case study of Mike to illustrate this concept:
Mike declared his sum insured as £100,000. A fire occurs and damages the property severely, resulting in £40,000 worth of damage. A loss adjuster is appointed to handle the claim and assesses that the building is underinsured and should in fact be insured for £200,000.
Mike’s claim will now be affected by average. As Mike has underinsured his building by 50%, his claim settlement will be reduced by 50%. Mike will therefore receive a settlement figure of £20,000, instead of £40,000.
We must therefore strongly advise, that you insure your buildings, contents, stock, commercial vans, or any other insurable item for its correct value.
If you do not know your sums insured and you are insuring a building, we would advise that you refer to the survey that you should have when purchasing your property. This should provide a sum insured for insurance purposes. For any other item, we would advise that you obtain a valuation before providing sums insured.
Remember, do not guess your sums insured, seek the advice of a professional if you are in any doubt.
1. What is a Building Sum When it Comes to Insurance?
Building sum insured, also known as building coverage or building insurance value, is the amount for which a property is insured. This value represents the maximum amount an insurance company will pay in the event of a total loss, such as a natural disaster, fire, or collapse. The building sum insured should be enough to cover the cost of rebuilding the property, including labor and materials, but it does not include the value of the land or other external factors.
2. Does this Concept Apply to Other Insurance Types?
The concept of sum insured applies to various types of insurance policies, not just buildings. For instance, in the case of car insurance or home contents insurance, the sum insured is the maximum amount that the insurance company will pay out in case of a claim. In all cases, it is crucial to accurately assess the value of the insured item to avoid underinsurance, which may result in an insurance company only partially covering the cost of a claim.
3. Examples of Building Sum Insured Cases
Here are a few examples to help illustrate how the building sum insured concept works:
*Case 1*: A homeowner has their house insured for a building sum of £300,000. However, the actual cost to rebuild the home after a fire is found to be £400,000. Because the homeowner had underinsured their property, the insurance company will only cover 75% of the claim (£225,000), leaving the homeowner to cover the remaining £175,000 out-of-pocket.
*Case 2*: A commercial property owner insures their building for £2 million. An earthquake causes significant damage, resulting in a total loss. The cost of rebuilding the property is estimated at £2.5 million. Due to undervaluation, the insurance pay out will be reduced to only 80% of the insured sum, or £1.6 million.
4. How do I Value a Building Sum for a Block of Flats Insurance?
Valuing a building sum for a block of flats can be more complex than a single dwelling property. Factors to consider include:
– The total number of flats
– Construction materials and techniques used in the block
When it comes to valuing a building sum for a block of flats, there are a few key factors you’ll want to consider. One of the most important is the overall condition of the building.
This includes everything from the roof and foundation to the plumbing and electrical systems. You’ll also want to take into account the age of the building, as well as its location and any renovations or updates that have been done.
Another important factor is the current demand for multi-family housing in the area. By taking all of these factors into consideration, you can arrive at a fair and accurate valuation for your block of flats.
- 1 What Does Buildings Sum Insured Mean? An Important Insurance Loophole
- 2 Please note the following basic building sum insured case study of Mike to illustrate this concept:
- 3 1. What is a Building Sum When it Comes to Insurance?
- 4 2. Does this Concept Apply to Other Insurance Types?
- 5 3. Examples of Building Sum Insured Cases
- 6 4. How do I Value a Building Sum for a Block of Flats Insurance?