What happens if I insure my property for a lower sum insured than it would cost to rebuild?

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Buildings insurance works on the basis of rebuild value, as opposed to market value. If you insure your property for less than the rebuild value then it is underinsured. This would mean that in the event of a claim, insurers will not pay the full amount, they will apply what is known as ‘average’.

For example, if your sum insured only covers 50% of your rebuild cost, then your insurers are only liable for paying 50% of the amount that you claim. This applies to your contents and loss of rent as well as your buildings cover.

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