Is your sum insured correct?

Beware of the underinsurance clause

If you are underinsured and have a claim will your insurer pay:


A: Upto the sum insured on the policy

B: A partial claim payment in proportion to the amount of under insurance

C: The replacement cost


It is a common misconception that under insurance would only come into effect if there was a total loss claim. As this is unlikely to happen, many people feel that they can insure their building or gross profit for a much lower figure to reduce insurance costs.

Unfortunately this can be catastrophic at claim time.

The under insurance clause on most insurance policies makes it a condition that you are insured for 80-100% of the actual replacement cost.

An example of the under insurance condition at claim time:

Replacement cost of building:$1,000,000
Insurance Sum Insured on Policy:$500,000

Claim amount (for example storm damage to roof) = $100,000
Amount payable by the insurer as a result of the application of the under insurance clause (ie. 50%) = $50,000

So how do I set my sum insured?

It is important that you take the time to accurately review and set the sums insured on your policy.

You need expert advise to fully understand how to set the sums insured on an insurance policy.

Some things you need to consider when setting a sum insured include:

  • Have you included the removal of debris costs?
  • What about council plans and engineering fees?
  • Have you reviewed and increased your sums insured with inflation?
  • Have you included staff wages in your business interruption sum insured?
  • Have you set an adequate business interruption period?

It is important to fully understand the insurance product that you have chosen.

Consider enlisting a builder or professional valuer to evaluate the replacement cost of your property. Remember the resale value of your property will be substantially different to the rebuild cost, so make sure you get an insurance valuation.

How can an insurance broker help?

Insurance brokers can offer expert advise on how to calculate an adequate sum insured. They will work with you to fully understand your requirements and tailor a program that suits your needs.

For example if you need to keep costs low, your insurance broker will be able to make recommendations to reduce costs and assist with funding whilst staying within the conditions of your policy.

I am worried that I am under-insured?

The emotional and financial impact of having a large claim that is under insured can be significant

If you have any concerns that you may be underinsured, please contact us for an obligation free review of your insurance.

Please note - this blog post provides information only. The content of this post, including any information contained in it, has been prepared without considering your requirements, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. You should review the product disclosure statement for any product that the information relates to it before acquiring the product.

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