Preventing Underinsurance: Why Regular Valuations Matter

Posted by Lee Partner, Head of Private Clients and Commercial

Underinsurance is one of the most common and costly mistakes that businesses and property owners make. It occurs when the sum insured on your policy is less than the actual cost to rebuild, replace, or repair your assets. In the event of a claim, this can lead to significant financial shortfalls, leaving you exposed to unexpected costs.

Why does it happen?  

Several factors contribute to underinsurance:

• Rising costs: Inflation and supply chain issues can increase rebuilding and replacement costs.
• Property improvements: Renovations or upgrades may not be reflected in your insurance policy.
• Incorrect valuations: Initial estimates may become outdated over time.
• New purchases: Many clients fail to inform their provider of new purchases made such as jewellery or fine art.

What is the impact?

If you’re underinsured, insurers may apply an ‘average clause’, reducing your claim proportionally to the percentage level of underinsurance. For example, if your property is insured for £500,000 but costs £1,000,000 to rebuild, you would be underinsured by 50%, meaning you could receive only £250,000 in the event of a total loss or 50% of any partial claim.

How can regular valuations help?

• Accurate cover: Your policy matches current rebuilding or replacement costs.
• Peace of mind: You avoid unexpected financial gaps during a claim.
• Compliance: Many insurers require updated valuations for high-value properties or assets.

What steps can I take to prevent underinsurance?

• Schedule professional valuations: Ideally every 3 years, or sooner if you’ve made significant changes.
• Review your policy annually: Check sums insured against valuation reports.
• Consider index-linked policies: These adjust for inflation automatically.

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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s registered broker, which means that we work with a wide range of niche and major insurers.

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.

Categories: Articles by Lee Partner, Private Clients,