Why is reinstatement of the sums insured necessary following a claim?
Property damage insurance cover is subject to sums insured against specified insured property. The sum insured is the maximum the insurer will pay in the event of insured loss or damage to the insured property.
In the event of a claim, the sum insured is ‘used up’ and reduced by the amount of the claim and the cover that remains after the claim is sum insured prior to the claim less the amount of the claim.
As the insured property is repaired or replaced the value of insured property may increase in value beyond the remaining sum insured, so the sum insured will need to be increased or reinstated to a sum insured appropriate to the risk following the repair or replacement.
What happens if I don’t reinstate my sum insured after a claim?
Failure to reinstate a sum insured can lead to situations where property is unwittingly under insured or even uninsured.
If a sum insured is not reinstated or increased to the correct value, the remaining sum insured may be inadequate and a further claim for insured loss or damage subject to under insurance with the claim reduced in accordance with the policy conditions relating to under insurance. Under insurance is usually dealt with by the application of Average, meaning a claim is reduced in direct proportion to the amount of under insurance.
In the event of insured loss or damage where the claim is for the entire sum insured, there is no cover for the replacement property unless the sum insured is reinstated.
How do I reinstate my sum insured following a claim?
The tendency now is for property damage insurances to contain a provision for automatic reinstatement.
Automatic reinstatement of the sum insured.
This is a clause in policies stating that the sums insured will be automatically reinstated following insured loss or damage. This is useful and provides some protection against failing to reinstate a sum insured, but does not provide protection where there is betterment following insured loss or damage and the insured value increases beyond that of the pre-claim value.
Where there is no automatic reinstatement provision in the policy, the insurer needs to be advised of the increase or reinstatement of the sum insured when the repair or replacement following the insured loss or damage takes place.
As with any increase to a sum insured, the insurer may make a charge for reinstating a sum insured. However, insurers rarely charge for reinstating a sum insured where there is automatic reinstatement provided by the policy.
What type of policies are affected by the need to reinstate the sum insured following a claim?
This can be relevant to any type of property damage insurance that provides cover on a sum insured basis. This includes property damage sections of package or combined policies, such as shop, office and commercial combined.
If in any doubt, the insurance adviser should be consulted in order to ensure that cover remains adequate following insured loss or damage.