| If you have a commercial building insurance, your | | | | access roads, then the rebuilding cost can, without |
| policy will contain a clause known as "the average | | | | question, be anywhere from a few hundred to a few |
| clause". Whilst there are many clauses, conditions and | | | | thousand pounds per square yard. |
| warranties within every policy, some are more | | | | If you have a commercial building, such as the hotel, |
| important than others. The average clause, as many | | | | insured for £1,000,000, many people think that if it |
| have found out, is one of the more important ones. | | | | were burned to the ground and destroyed |
| The chances are, that even if you have read your | | | | completely, then the insurers would simply pay out |
| policy wording, or reviewed it, this clause is not one | | | | £1,000,000. However, this is not the case and this is |
| that you have heard of. So what exactly does it | | | | where average kicks in. If the building would really |
| mean? | | | | cost £2,000,000 to rebuild, then you are effectively |
| The average, or reinstatement clause, simply states | | | | under-insuring the structure. |
| that you need to insure for the correct amount. | | | | The insurers are receiving 50% less premium than |
| Unlike houses and cars, insurers do not have unlimited | | | | they should have, so any claims will be reduced by |
| statistics that say how much it will cost to replace a | | | | 50%. If the building were completely destroyed, then |
| commercial building. If you think about your family car. | | | | you will not get the £1,000,000, but £500,000. |
| If it is a 2004 Ford Galaxy, with 50,000 miles, then it | | | | Some people feel this in unfair, but you have to think |
| will not take long to find out how much it would cost | | | | about from the insurers point of view. They have |
| to buy an equivalent model. | | | | not been paid the full premium for the risk, so it is |
| So, whilst you are asked to declare the value of the | | | | quite right that they can turn around and reduce |
| car at quote stage, this does not really affect things. | | | | claims. |
| But, when you are talking about business insurance, | | | | Insurers do have a heart though. They understand |
| things are different. We do not have scales, or levels | | | | that there will always be cases where this is the |
| of cover. You need to state exactly how much a | | | | potential for a sum insured to be slightly out. Most |
| building would cost to re-instate fully. | | | | commercial building insurance policies, will allow leeway |
| If you have a modern, steel framed, building with | | | | of between 10 and 20%. So, if your £1,000,000 |
| dwarf brick surrounding walls, you will be able to | | | | policy is really for a building that costs £1,150,000 to |
| work out, very roughly what it would cost to rebuild. | | | | rebuild, most insurers will pay the full amount and not |
| You take a cost per square yard, say £75, and | | | | reduce this by 15%. |
| multiply this by the total area. As it is modern | | | | As with all policies, you need to speak to an expert, |
| materials, then the rebuilding cost is not going to | | | | independent business insurance broker, to get advice |
| change greatly. If you are talking about a Grade I | | | | on not only the cost, but the inner terms and |
| listed hotel, in the middle of nowhere, with difficult | | | | conditions, before you purchase any policy. |