# Home insurance sums insured: what underinsurance is and how claims are cut

> When you take out buildings or contents insurance you state how much your home or belongings are worth. Set too low, a claim can be cut. This guide…

- URL: https://centiview.com/uk-money/home-insurance-sum-insured-and-underinsurance
- Published: 2026-10-18T22:37:00.000Z
- Figures checked: 2026-10-18
- Edited by David A
- Topic: Insurance (UK)
- Publisher: Centiview (Persie Ltd, London)
- General information only, not financial advice

When you take out buildings or contents insurance you state how much your home or belongings are worth. Set too low, a claim can be cut. This guide explains how that works and what the Financial Ombudsman expects of insurers.

## What buildings and contents cover mean

Home insurance usually has two parts. Buildings insurance covers the structure of the property and its permanent fixtures, such as baths and fitted kitchens, and usually outbuildings such as garages and sheds. Contents insurance covers possessions you would take with you if you moved, such as televisions, jewellery, furniture and clothing. The Financial Ombudsman Service, the free body that settles disputes between consumers and financial firms, says the split is not always obvious: fitted wardrobes and built-in appliances are usually buildings, while fitted carpets count as contents because they can be lifted and re-laid.

You can buy buildings only, contents only, or both, including from different insurers. Renters usually need only contents cover, because the landlord normally insures the structure. Cover levels can differ between the two sections, so the policy wording and schedule decide what is covered.

## What the sum insured is and why it matters

The sum insured is the amount of cover you ask for, and it works as the ceiling on what the insurer will pay. For buildings, the relevant figure is the rebuild cost, meaning what it would cost today to rebuild the home. The Ombudsman describes this as including clearing debris, professional fees, VAT and the cost of meeting government requirements. It is different from the price the home might sell for, so a market valuation is not a safe stand-in. For contents, insurers typically ask for the total value of everything at risk, meaning what it would cost to replace the items.

Underinsurance is insuring for less than the amount needed to rebuild or replace. The Ombudsman says working out these figures is often difficult, and that common causes include unclear application questions, pre-filled online figures that nobody checks, and miscalculated sums. The question it asks is whether the answer given was within a reasonable range, not whether it was exact.

## How a claim can be reduced: the average clause

Some policies contain an average clause. This is a term that lets the insurer pay only part of a claim when the sum insured is lower than the true replacement or rebuild cost, using a formula to work out the proportion. The Ombudsman's own example is a home with a £400,000 rebuild cost insured for £200,000: it is 50% underinsured, so an insurer applying the clause could pay 50% of a claim. A second example from its guidance for firms is a £300,000 sum insured against a £500,000 requirement, which means 60% of the claim is paid (300,000 divided by 500,000 is 0.6).

The Ombudsman usually considers it unfair to apply the clause if the insurer never asked for the full replacement or rebuild cost, if the policy has no average clause, or if the consumer was not clearly warned about underinsurance. Even where the clause exists, it is unlikely to be fair without a clearly worded term.

## A worked example

The figures here are illustrative only. Suppose a household's contents would cost £25,000 to replace, but the policy states £15,000. The sum insured is 15,000 divided by 25,000, which is 0.6 or 60% of the true value. If a burglary causes a £5,000 loss and the policy contains an average clause, the insurer could pay 0.6 multiplied by £5,000, which is £3,000, leaving a £2,000 shortfall before any excess. With no average clause, or if the insurer never asked for the full replacement value, the Ombudsman would usually expect payment in full, up to the sum insured.

The Ombudsman also describes a premium-based approach. If the answer given was outside the reasonable range, it asks what the insurer would have done had it known the correct figure. If it would have charged the same premium, reducing the claim is unlikely to be fair. If it would have charged more, the claim may be reduced in proportion to the premium paid: paying £400 when £500 would have been charged supports paying 80% of the claim (400 divided by 500 is 0.8). Where the insurer would not have offered cover at all, reducing or declining the claim may be fair.

> **Key numbers** Ombudsman examples, checked 18 October 2026: £200,000 insured against a £400,000 rebuild cost is 50% underinsured; £300,000 against £500,000 is 60%. Most insurers have up to 8 weeks to give a final response, and you have 6 months from it to go to the Ombudsman.

> **Who this affects** Anyone with buildings or contents insurance in the UK, including owners, leaseholders and tenants insuring their own belongings. It does not cover business or motor insurance.

## Common mistakes and what to check

- Using the market value of the home as the buildings sum insured, when the rebuild cost is a different figure.
- Accepting a figure pre-filled by a calculator or carried over from a price comparison site without checking it.
- Leaving out items that build up over the years, such as clothes, books and electronics, when adding up contents.
- Not checking whether the policy has an average clause.
- Not updating the sum insured after building work or major purchases.

Citizens Advice suggests, in its flood claims advice, that once a claim arises it helps to phone the insurer quickly because there are usually time limits, photograph the damage and keep an inventory and copies of everything sent. Insurers may use a loss adjuster, someone who assesses the damage for them, so some people get their own quotes for like-for-like replacements. Exaggerating a claim can lead to it being rejected altogether.

## Where to get free help

If a claim is reduced for underinsurance, the first step is to complain to the insurer and ask how the figure was calculated and what question was asked when the policy was sold. Most insurers have up to 8 weeks to give a final response. If you remain unhappy, or hear nothing, you can take it to the free Financial Ombudsman Service within six months of the date on the final response letter. It may ask for the claim to be paid in full and can award compensation for distress or inconvenience. Citizens Advice and MoneyHelper also give free guidance on insurance.

## Check before you act

Policy terms differ, and rules, limits and time limits can change, so confirm anything that applies to your situation on the official pages linked below and in your own policy documents. This guide is general information, not advice, and it describes the position in the UK as of 18 October 2026.

### Sources
- [Financial Ombudsman Service: Underinsurance in home insurance complaints (consumers): <](https://www.financial-ombudsman.org.uk/consumers/complaints-can-help/insurance/home-insurance/underinsurance>)
- [Financial Ombudsman Service: Home and buildings insurance (consumers): <](https://www.financial-ombudsman.org.uk/consumers/complaints-can-help/insurance/home-insurance>)
- [Financial Ombudsman Service: Underinsurance in home insurance complaints (for businesses): <](https://www.financial-ombudsman.org.uk/businesses/complaints-deal/insurance/home-buildings-insurance/underinsurance-home-insurance-complaints>)
- [Financial Ombudsman Service: How to complain: <](https://www.financial-ombudsman.org.uk/consumers/how-to-complain>)
- [Citizens Advice: Making an insurance claim for flood damage: <](https://www.citizensadvice.org.uk/scotland/housing/flooding-s/making-an-insurance-claim-for-flood-damage/>)