When it comes to protecting your property, determining the correct rebuild value is crucial. This figure is more than just a number; it’s a foundation for your entire insurance policy. Setting this accurately ensures that, in the event of a loss, your property can be fully restored without unexpected financial gaps
Here, we’ll explore the legal framework behind rebuild values, the principle of utmost good faith, and the potential consequences of underinsurance.
Who is responsible for determining the rebuild value of a property?
Ultimately, the responsibility for establishing an accurate rebuild value lies with the property owner or policyholder. While insurers provide coverage based on the figures presented to them, they rely on the policyholder to supply correct and up-to-date information regarding the rebuild cost.
Insurers generally advise policyholders to seek a professional assessment, often through a qualified surveyor, to determine an accurate rebuild value. This ensures that the property is insured to its full potential, aligning with the Duty of Fair Presentation under the Insurance Act 2015 and safeguarding against potential financial shortfalls in the event of a claim.
Duty of fair presentation: a legal requirement under the Insurance Act 2015
The Insurance Act 2015 introduced the Duty of Fair Presentation, which obliges policyholders to provide all relevant information accurately when securing insurance coverage. This duty includes the requirement to disclose the correct rebuild values of your property. Insurers rely on this information to accurately assess the level of risk and determine appropriate premium levels. Inaccurate or incomplete disclosures of rebuild values could result in reduced claim settlements or, in worst-case scenarios, voided claims altogether.
The principle of utmost good faith
In insurance, the common law principle of uberrima fides, or utmost good faith, applies to both parties. This means that both the insurer and the insured are required to act honestly and disclose all pertinent information. In practical terms, for property owners, it means that an accurate rebuild value is essential for fulfilling this duty. By ensuring the accuracy of disclosures, policyholders protect themselves against underinsurance, which can lead to unexpected financial setbacks at the time of a claim.
Consequences of underinsurance
One of the primary risks of undervaluing property rebuild costs is underinsurance. Many policies include a proportional settlement clause. When underinsurance occurs, this clause permits the insurer to reduce claims proportionally to the undervaluation. This reflects the difference between the declared rebuild value and the actual cost to rebuild. For instance, if a property is insured for only 75% of its true rebuild value, an insurer may reduce any claims pay-out by 25%, leaving the policyholder to cover the shortfall.
Our recommendation: rebuild cost assessments
To avoid these pitfalls, we strongly recommend conducting a rebuild cost assessment. This process, typically conducted by a chartered surveyor, provides an accurate valuation of rebuild costs and ensures your insurance coverage aligns with reality. Not only does this protect against underinsurance, but it also facilitates smoother claims handling by eliminating discrepancies in declared and actual rebuild costs.
Improving claims settlement experiences
Despite the legal and ethical principles involved, underinsurance remains a common issue. We actively work with clients to address and improve their claims settlement experiences, offering advice on keeping rebuild values accurate and compliant with industry standards. Through regular reviews and professional assessments, we aim to help our clients navigate this critical component of property insurance smoothly and confidently.
Protecting your property’s value is about more than just meeting insurance requirements; it’s about safeguarding your investment in times of need.
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