The Average Clause

You may or may not have heard about the ‘Average’ condition which can apply to home insurance policies.

It’s a big deal and here’s why you need to know about it.

Average may be written into your home insurance policy wording, or it may be shown on your schedule as the ‘Average Clause’.

It states that if you are underinsured, insurers can reduce the amount they pay out in the event of a claim.

It can apply to the buildings, contents, fine art and jewellery sections of your policy.

How does it work?

You’re insuring your buildings for £700,000.

And then have a claim for, say, £10,000.

The insurer sends around their Loss Adjuster who measures up and states that the rebuild figure should in fact be £1 million.

As you are insuring for 70% of the correct sum insured, and paying 70% of the correct premium, the insurers will only pay out 70% of your claim. So they’ll pay £7,000, leaving you £3,000 out of pocket.

There is another version of ‘Average’, based on the amount you are actually paying for your home insurance versus what you should have paid if you had been insured properly. This works in a similar way.

Is it unfair?

It’s not ideal, but it’s a way of making sure that you only get what you pay for. If your £1m home burned down and you were insuring it for £700,000, you wouldn’t expect the insurer to pay the full £1m.

How do I know if my policy contains Average?
You’re looking for the words “proportionately reduce”, often in the section ‘How we will pay your claim’ or the General Conditions section. A typical clause reads as follows:

We may only pay the same proportion of any claim as the sum insured bears to the full value of the property.

It’s worth noting that nearly all thatched home insurance policies have the Average Clause.

What can you do about it?

Obviously, you should do as much as possible to make sure that you’re not underinsured. And you should look out for insurance policies that don’t have this Average Clause.

Ensure your rebuild figure is based on a survey and that any building work or home improvement has been taken account of. Howden can put you in touch with a survey company who can arrange a desktop survey or a visit to your home (if more appropriate). Many of our policies will then guarantee your rebuild figure, even if it turns out to be more than insured for.
Review your contents sum insured to make sure it’s adequate. We can help you with this.
Ensure you have up to date valuations for any art, jewellery and watches. We recommend that valuations are updated at least every five years.

How Howden can help

We can advise if your current home policy contains Average, help find you a policy which doesn’t have this clause and help you set your sums insured to realistic values.

For more help or advice, please call 020 8256 4901.