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Buildings Insurance – The risks of being UnderInsured

The Risk of Underinsurance in the UK

Underinsurance is one of the biggest issues facing property owners across the UK. Whether you own a residential home, a buy-to-let, or a commercial property, failing to insure your building for the correct value could leave you seriously out of pocket.

Recent UK insurance surveys suggest that around 80% of properties are underinsured, often by 20% or more. This means most property owners are paying premiums each year but still don’t have adequate cover in the event of a major loss.

Why Do So Many Properties End Up Underinsured?

There are several reasons why buildings sums insured don’t reflect the true cost of reinstatement:

  • Rising construction costs – Inflation in labour, building materials, and professional fees increases rebuild costs each year.

  • Outdated valuations – Many owners set a sum insured years ago and never review it.

  • Confusing “market value” vs. “rebuild cost” – Insurance should be based on the cost to rebuild, not the selling price.

  • Extensions and renovations – Improvements to the property are often not declared to insurers.

  • VAT and fees – Owners sometimes forget to include demolition, debris removal, and architects’ fees in their sums insured.

The result is underinsurance, which can dramatically reduce the payout you receive following a claim.

The Importance of the Average Clause

Most UK property insurance policies include an Average Clause. This clause is designed to ensure fairness between policyholders – but it can be a nasty surprise if you are underinsured.

In simple terms, the Average Clause means that if your property is insured for less than its true rebuild cost, any claim will be reduced in proportion to the level of underinsurance.

How the Average Clause Works – Example

Let’s say:

  • The true rebuild cost of your property is £1,000,000

  • You insure it for £750,000 (25% underinsured)

  • A fire causes damage worth £400,000

Because of the Average Clause, the insurer will not pay the full £400,000. Instead, they apply the proportion of underinsurance:

Sum Insured ÷ True Value × Loss = Settlement

£750,000 ÷ £1,000,000 × £400,000 = £300,000 payout

This leaves you £100,000 short – even though your sum insured looked high on paper.

Residential vs Commercial Property Risks

  • Residential properties – Homeowners often underestimate rebuild costs, particularly for period properties, listed buildings, or houses with specialist features. For tailored cover, explore our Residential Landlords Insurance.

  • Commercial properties – Business owners are especially vulnerable due to larger, more complex buildings, additional compliance costs, and the need to cover tenant improvements. Learn more on our Commercial Property Owners Insurance page.

For landlords and commercial property owners, underinsurance can also affect business continuity if repairs are delayed due to lack of funds.

How to Avoid Underinsurance

  • Get a professional rebuild cost assessment – Use a chartered surveyor or online RICS calculator.

  • Review your sums insured regularly – Ideally every year, especially after renovations.

  • Factor in fees and VAT – Don’t forget demolition, debris removal, and professional costs.

  • Work with a specialist broker – At Just Quote Me Ltd, we help ensure your sums insured are realistic and up to date.

Protect Your Property Investment

Underinsurance is a hidden risk that could cost you thousands at the worst possible time. By reviewing your sums insured and understanding the Average Clause, you can safeguard your financial security.

👉 Contact Just Quote Me Ltd today for expert advice and a no-obligation property insurance quote. Make sure your residential or commercial building is fully protected.