This is something that can easily catch people out.
In modern Insurance Broking, a standard household policy will likely offer a blanket sum insured up to £1,000,000. This means if you have disclosed an estimated rebuild valuation of, say, £600,000 then the insurance will automatically cover up to blanket sum insured of £1,000,000.
However, if you are insuring a property you let out (a property owners policy) you will be insured for an agreed rebuild valuation amount. There can be a temptation to provide a lower sum insured for a cost saving, but if there is ever a claim and the property is deemed to be under insured then average will apply and, depending however far under insured you are, only part of the claim maybe settled.
Mrs X insures her house for £100,000. The building has a fire and causes £50,000 worth of damage. When the rebuild valuation is carried out by a loss adjustor, it is deemed the rebuild value should have been £200,000. This means the sum insured was 50% underinsured and thus only a £25,000 settlement could be made due to underinsurance.
Achieving the correct sum insured is a difficult task as many factors are involved beyond the cost of bricks & mortar. The distance from suppliers impacts the delivery charges for materials, a busy high street location may require scaffolding with high safety levels or if the building is listed the conservation and planning requirements are likely to be more costly just to name a few.
As an insurance broker we can point you in the right direction of where you get the best advice to help insure your property for the right value!