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The Importance of the "Sum Insured " Number on Your Insurance Policy

When you take out an insurance policy your insurer or broker will ask you what the declared value of your property is.  This is the rebuild cost.  Policies will usually uplift this figure slightly to arrive at a "Sum Insured" figure.

The Sum Insured figure is related to what it would cost to re-build the property if it was completely destroyed. It has nothing to do with the market value of your property.  It's not a good idea to guess the rebuild cost / declared value because if you give too low a figure then you might run into serious difficulties when you make an insurance claim. 

As an example, let's say you have had a flood in your kitchen and as a result you need your flooring replaced, kitchen units replaced, and your damaged ceiling plastered and painted.  If the insurers assess the value of the damage at £ 10,000 they may reduce what they are willing to pay under your claim if you are underinsured.  So if your Sum Insured should be £ 350,000 and you set this figure at £ 250,000 by providing too low a figure for rebuild cost at the time you purchased the policy you are about 30% underinsured.  In this case the insurer might "apply and average" and reduce what they are willing to pay under your claim by £ 3,000 so you would only get £ 7,000.

In extreme cases and especially for large claims you might not receive enough from insurers to properly carry out the repairs at your property.

The following link is a particularly good article on the subject :

How Do I Make Sure I Have The Right Sum Insured ?

Its best to have a surveyor provide you with a rebuild cost for your home but if you dont want to incur the expense to do this then have a look on the following link for The Association of British Insurers which will help you calculate what the rebuild cost would be of your home :
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