How average works
If the sum insured is lower than the true value at the time of the loss, the insurer pays only the same proportion of the claim. A simple example with round numbers:
| Amount | |
|---|---|
| True replacement value of contents | 60,000 |
| Sum insured | 40,000 (two-thirds) |
| Claim after a kitchen fire | 9,000 |
| Payout under average | 6,000 (two-thirds), before the excess |
This is an illustration, not a prediction: wordings differ, and some policies don’t apply average at all or only when under-insurance exceeds a margin.
Why under-insurance happens
- Buildings insured for market value instead of rebuild cost, or not updated as costs rise.
- Contents totals guessed rather than counted.
- Business stock that grows seasonally.
- Business interruption based on turnover or last year’s profit, with too short an indemnity period.
How to avoid it
- Recalculate sums at each renewal, and after renovations or big purchases.
- Use the BCIS calculator or a surveyor for UK rebuild costs.
- Do a room-by-room contents inventory.
- Ask whether index-linking or “day one” reinstatement is available on business property.
Last updated: 20 September 2026
