This occurs where the insured sums on your property is less than the value it will cost to reinstate or replace it. All buildings should be insured for their full replacement value, including the cost of demolition and debris removal. Where a property is underinsured, the value of any claim is reduced by whatever proportion is represented by the level of under-insurance.
For example, a slatted shed with a full rebuilding cost of €100,000 is insured for €60,000 i.e. only 60% insured. If there’s partial damage to the building of say €40,000, then only 60% of the €40,000 will be paid out equaling €24,000. It’s important to consider that, in the event of full damage where the total building is totally destroyed, then the €60,000 will be paid – but this still only represents 60% of the replacement cost.
An average clause means that the insured will bear such portion of the loss as they’re deemed to have carried themselves i.e. 40% in this case.