Buildings insurance - Over- and under-insurance

If you insure for substantially more than the cost of rebuilding you will be over-insured, which is a waste of money. However, if you insure for less than the rebuilding cost of your home (i.e. you are under-insured) your claims can be refused or, more likely, they will be made ‘subject to average’. This means that the insurer will calculate what you should have been insured for, then look at what proportion of that sum you are actually insured for, and then will pay out the same proportion of any claims you make. So if you should be insured for £100,000 but you are actually insured for £75,000, the insurance company may pay only 75 per cent of any claim.