8 August 2025
Guide to Understanding the Insurance Reinstatement Valuation
8 August 2025Guide to Understanding the Insurance Reinstatement Valuation
8 August 2025Average Clause in Insurance
The Complete Guide for Homeowners, Landlords & Business Owners
Why the Average Clause Deserves Your Attention
Ever heard your insurer mention an Average Clause and felt that creeping sense of “wait, what’s that?” - you’re not alone. This little clause is quietly tucked into many insurance policies, yet it carries major financial weight. In the simplest terms, the Average Clause means that if your property is underinsured, your insurer can reduce any payout in direct proportion to the shortfall.
That’s right - even if your claim is perfectly valid, you may still only get a fraction of what you expected. Imagine budgeting for repairs only to find out you’ll need to double that budget because of a technicality hidden in your policy wording. That’s the Average Clause in action.
The Risk for Homeowners, Landlords, and Businesses
Whether you own a home, rent out properties, or manage business premises, the Average Clause can come back to bite. Rising building costs, supply chain pressures, and inflation mean many insured sums are already out of date. One of the most common mistakes is confusing market value with rebuild value - two figures that are very different.
Market value includes the land and location premium, while rebuild value is purely about construction: materials, labour, demolition, and professional fees to put your property back as it was. Insurance is always based on rebuild cost, never on what you could sell the property for. That’s why an accurate Rebuild Cost Assessment from Exactum is one of the smartest safeguards you can put in place - because close enough isn’t enough when disaster strikes.
What Is the Average Clause in Insurance?
Underinsured:
The Average Clause is triggered when the sum insured is less than the actual rebuild cost of your property. Insurers then apply a proportional reduction to your claim.
For example:
- Insured for £300,000
- True rebuild costs £600,000
- Claim £50,000
- Payout = £50,000 × (300,000 ÷ 600,000) = £25,000
👉 Remember: “Don’t let the Average Clause make your payout below average.”
Fully Covered Thanks to Proper Rebuild Cost Assessment
Fully Insured:
Because your sum insured equals your true rebuild cost, the Average Clause doesn’t apply. The claim is paid in full - your insurer covers what you expect.
For Example:
- Rebuild value: £750,000
- Sum insured: £750,000
- Damage claimed: £150,000
- Payout: £150,000
👉 Remember: “Saving on premiums today could cost thousands tomorrow.”
People Also Ask (FAQs)
1. What’s the Average Clause in insurance?
It’s a policy condition that allows insurers to reduce payouts proportionally if the property is underinsured.
2. How do you calculate it?
Divide the sum insured by the actual rebuild value, then multiply by the claim amount. That’s the payout figure.
3. Why is a Rebuild Cost Assessment important?
Because it gives you the true rebuild figure - not a guess. Without it, your insurance is likely based on outdated or incorrect values.
4. Can you avoid Average Clause penalties?
Yes. Keep your insured sums aligned with professional rebuild assessments. Some insurers offer an 85% clause (a buffer before penalties kick in), but the safest route is always full cover.
5. Who Is Most at Risk from the Average Clause?
Homeowners – Especially those who rely on mortgage valuations or online calculators that don’t reflect rebuild complexities.
Landlords – With multiple properties, the risk multiplies - underinsurance across several assets could cost a fortune.
Business Owners – Commercial properties often have plant, machinery, or specialist fittings. Miss these in your insured sum, and the Average Clause will punish you.
Why It Matters: The Case for a Rebuild Cost Assessment
Without an accurate rebuild figure, you’re leaving your insurance to chance. Here’s why Rebuild Cost Assessments are essential:
- Market value ≠ rebuild cost – Many assume insuring for the purchase price is enough. Wrong.
- Construction costs change – Inflation, labour shortages, material spikes - all shift rebuild figures rapidly.
- Improvements aren’t always factored in – A new extension or upgraded kitchen? Unless updated, your policy won’t reflect it.
- Business properties are especially vulnerable – Machinery, stock, and specialist fittings add hidden costs.
At Exactum, we specialise in Rebuild Cost Assessments that give you the true reinstatement figure, so your cover matches reality. Insurance peace of mind starts with precision, not approximation.
Key Takeaways
- The Average Clause reduces payouts when you’re underinsured.
- Formula: (Sum Insured ÷ Rebuild Value) × Claim = Payout.
- It applies across homes, rental properties, and commercial premises.
- Rebuild Cost Assessments keep your sums insured accurate.
- Inflation and property improvements make regular reviews essential.
- Don’t rely on market value - always insure for rebuild value.
Your Insurance Safety Net Starts Here
The Average Clause may look like a small footnote in your insurance policy, but its impact can be massive. If you’re underinsured, your payout will be cut to size - and not in your favour.
The solution is straightforward: know your rebuild cost, insure accordingly, and review regularly. With Exactum’s expertise, you can take control, avoid costly surprises, and rest easy knowing your cover is rock solid.
👉 “Insure smart. Rebuild right. Sleep easy.”
How Exactum Can Help
At Exactum, we know that the Average Clause is one of the most overlooked traps in property insurance - and we also know the simplest way to avoid it: making sure your rebuild cost is 100% accurate. That’s where our team of Chartered Surveyors comes in.
When you commission a Rebuild Cost Assessment with Exactum, you’re not just getting a figure plucked from a generic calculator. You’re getting:
- A detailed inspection by RICS Chartered Surveyors with years of expertise.
- An accurate, independent calculation of your property’s true reinstatement cost.
- Consideration of everything from demolition costs to professional fees, inflation, and materials.
- A comprehensive report you can hand straight to your insurer - ensuring your cover matches reality.
Whether you’re a homeowner, landlord, or business owner, we can help you:
- Avoid underinsurance penalties caused by the Average Clause.
- Save money long-term by preventing nasty surprises during a claim.
- Rest easy knowing your assets are properly protected.
Take Action Today
Don’t wait until a claim to discover the harsh reality of the Average Clause. With Exactum’s expert Chartered Surveyors by your side, you’ll know your rebuild cost is accurate - and your insurance is watertight.
✅ Request your Rebuild Cost Assessment now
✅ Call 0800 028 0695 - Speak to our team of Chartered Surveyors for advice
✅ Protect your home, rental, or business premises with confidence
👉 “Get it right today, so tomorrow is worry-free.”
