It is important that you understand what the average clause so that you do not lose out financially in the event of you wanting to make a claim on your contents insurance.
The Average Clause: what is it?
This is part of the small print noted in your contents insurance policy. The average clause relates to material damage to property and possessions. It gives insurers the option to pay less than you have claimed for if you have (either by accident or on purpose) underestimated the value of the contents you have in your house. So, if you say your possessions cost less than they are actually worth and the insurer discovers this, you will receive less money from them. This is why it is so important that you cover your home and contents for their correct value so that if you ever were to make a claim you would be paid in full.
The Average Clause: how does it work?
The best way to explain this is with an example:
The contents of your home is valued at £100,000, but you only take out insurance for £50,000, you underestimate the value of your contents by 50%. In this case you will be making a saving on your insurance premiums, but the insurer will be under the belief that you only have half the assets you actually have, and they will only pay you for that amount.
In this example, you are later burgled and make a claim for £25,000 (50% of what your insurers think your contents were worth, but only 25% of what they’re actually worth). While investigating this claim, your insurer finds out you underinsured by 50% and the “average clause” comes into effect. Because you only insured half of the true value of your possessions, the insurers will only pay half of the value you claim for. Which means (in this example), you would receive £12,500. Similarly, if you insured your contents to 75% of their true value, the insurer would pay up to 75% of your claim, etc.
Working out the value of your contents:
Now you know why it is important to value your contents to the correct value, although we know it can be tempting to give an estimate when you are asked, this could be a costly mistake.
To calculate what your contents are worth, you should go from room to room and make a list of your contents. On this list, include everything you would need to replace if you were burgled or in the event of a building fire, avoid focusing on just the expensive things.
Then look through your insurance policy and see exactly what it covers. Some insurers will only cover the contents of your home, whereas others might cover the contents of your shed or garage, for example.
Tips for valuing your contents for an insurance claim
- Regular valuations: The value of your contents could change over time, things like antiques or jewellery could become more expensive the longer you own them. Which is why every couple of years you should have items such as this valued.
- Be cautious of online valuation tools: these don’t always give you an accurate valuation, so if you do use one of these, check the figures afterwards.
- Get unlimited contents cover: If you aren’t sure what your contents are worth, then consider taking out unlimited contents cover. If you do this you will most likely have to pay a higher premium than with a standard policy.
Single-item limits: what are they?
Items that are expensive need to be listed separately on your insurance policy, which may increase your premiums. The single-item limit is in place to ensure expensive items are named separately by limiting the amount the insurance policy will payout on any one item. The price is usually £100 to £2000. Any items that exceed this value and haven’t been listed separately on the policy, may not be covered to the full value.