Essentially, the average clause allows your insurer to reduce your payout by the percentage you are underinsured.
For example, let’s say your home is insured for £250,000 but its actual value is £500,000, then you would be underinsured by 50%. If you suffer a loss, such as a fire which causes £50,000 worth of damage then, using the average clause, your insurer would only pay out £25,000.
Don’t forget – you’ll also need to pay the excess before any claim can go ahead, so the final payout is likely to be even lower.
The average clause might seem unfair, but it’s a way for insurers to protect themselves from policyholders who might intentionally underinsure their property. Not all insurers use the average clause, but if they do it should be clearly set out in your policy documents.