The Hidden Gaps in Your Policy, and How to Close Them

Underinsurance and the average clause

The most expensive gap is also the quietest: insuring a building or contents for less than it would cost to replace. Many property policies contain an “average” (or co-insurance) clause, which means that if you are underinsured, the insurer can reduce even a partial claim in proportion.

Insure a $1M building for $700,000 and a $200,000 fire can be settled at a fraction of that. The fix is to base the sum insured on the cost to rebuild today, not the market value, and not last year’s figure.

When the policy does not match what you actually do

Cover is written against the occupation, activities and occupancy you declared. If any of those drift (a home that is now partly a short-stay rental, a business that has taken on a new line of work, a commercial building that sat empty for a few months), the policy may no longer respond.

Insurers are entitled to ask why they were not told. Keeping your details current is not paperwork; it is what keeps the cover live.

Valuations that have quietly gone stale

Building costs have moved sharply in recent years. A sum insured set three or four years ago, then rolled over at each renewal, can be well short of today’s rebuild cost without anyone noticing.

For commercial property especially, a periodic rebuild-cost assessment is worth the effort. It is far cheaper than discovering the shortfall after a loss.

The cover you assumed was included

Plenty of important cover is optional, and easy to leave off a cheap policy: flood, accidental damage, business interruption, machinery breakdown, and cover for property while it is away from the premises.

None of these are automatic. The time to find out whether you have them is now, reading the schedule, not at claim time.

How to close the gaps

Review the policy once a year, declare anything that has changed, keep your sums insured current, and actually read the exclusions and conditions. A broker does this as a matter of course, and will tell you where your cover is thin before an insurer does.