Insurance definitions: Sum Insured vs Declared Value (Reinstatement Value)

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Below is our simple definition of a concept that often causes confusion – we hope this if of use:

Sum Insured

The sum insured is made up of two elements being a “Declared Value” and an “Inflation Provision”.

The Declared Value or Reinstatement Value

The Declared Value is the cost of rebuilding the premises insured on the first day (Day One) of each period of insurance. As long as this figure is adequate on that day any claims will be free of average. If it is inadequate it is possible that average could be applied meaning that any valid claim payout would be proportionally reduced by the amount that the property is deemed underinsured.

The Inflation Provision

This is the percentage uplift designed to cover inflation during the insurance year and during the subsequent period required for designing, planning, tendering and actual reconstruction, however long that might take. This is usually 30% of the Building Declared Value.

Conclusion

Therefore the key figure for obtaining an insurance quotation is the Declared Value / Reinstatement Value. Meanwhile the Sum Insured in more of an arbitrary, but nonetheless important, figure.

Often, over time, the Reinstatement Value of the building moves out of sync with its ‘market’ level. An insurance re-valuation may be worthwhile, and its cost may be recoverable from the Lessee.

In order to partly adjust for this, we automatically uplift the reinstatement values in line with the inflation level as advised by the RICS (Royal Institute of Chartered Surveyors) each year on renewal. Nevertheless, a reinstatement valuation is normally recommended every 3 years.

If you require a competitive insurance quote for your property, or any further clarification, don’t hesitate to get in touch.

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