Your home suffers €40,000 worth of storm damage. You make a claim. Your insurer offers just €30,000.
In this example, the gap is down to the Average Clause.
Many homeowners only learn about it when they make a claim.
As Public Loss Assessors, we handle insurance claims daily. Underinsurance comes up regularly in our work: homeowners who believed they had full cover and paid their premiums for years, then found at claim time that their sum insured was too low.
If you understand how the Average Clause works before you ever need to claim, you can check your cover and put it right.
What Exactly Is the Average Clause in Insurance?
The Average Clause is a standard provision in Irish home insurance policies. It reduces claim payouts when your property is underinsured.
Put simply, if you insure your home for less than it would cost to rebuild, the payment on any claim can be reduced, not just on a total loss.
Think of it as a penalty for underinsurance. Your insurer calculates what percentage of proper cover you have. Then pays that percentage of any claim.
How Insurers Apply the Average Clause
Insurance companies don’t wait for total destruction to apply this clause. A burst pipe, causing €5,000 damage, triggers it. So does a small kitchen fire. Any claim, any size.
The process works systematically. You make a claim, your insurer checks your sum insured against current rebuild costs, they find you’re underinsured, they reduce your payout proportionally, and you pay the difference yourself. If your policy is subject to average, this is how the payment is usually calculated. The terms are set out in your policy.
Legal Framework & Consumer Rights in Ireland
Irish insurers operate within strict guidelines. The Central Bank requires transparency about the Average Clause. But transparency doesn’t mean protection.
Your policy documents spell out the clause clearly.
The Average Clause Formula: How Payouts Are Calculated
The Average Clause formula seems straightforward:
Let’s make this real.
That’s nearly 30% of repair costs from your pocket in the storm damage scenario. For being underinsured by an amount you probably didn’t know about.
On a larger claim the shortfall grows in proportion, and on a total loss it could leave you without enough to rebuild.
Why Irish Homeowners Fall Into the Underinsurance Trap
Property Values vs Rebuild Costs – The Confusion
Many people confuse market value with rebuild cost. It is an easy mistake, and an expensive one.
Your house might sell for €450,000. But rebuilding it could cost €380,000. Or €550,000. Market value includes land. Rebuild cost doesn’t. But rebuild cost includes demolition, site clearance, architect fees, VAT. Things market value ignores.
Dublin homeowners face particular challenges. A modest three-bed semi might sell for €500,000+. Its rebuild cost? Could be €280,000. Or €400,000 if period features need restoration. A period cottage in Dublin 4 might sell for €800,000 but cost only €400,000 to rebuild.
Inflation’s Silent Erosion
Building costs surged 14% in 2022 alone. Materials, labour, everything costs more now. Building costs have risen 30%+ since 2020.
That €300,000 sum insured from 2019? It buys maybe €240,000 worth of building work today. Under the Average Clause, that gap is treated as underinsurance.
Home Improvements Nobody Tells Insurance About
New kitchen? Extension? Converted attic? Each increases rebuild costs.
We see it constantly. Homeowners spend €30,000 on renovations. Never update their insurance. Then wonder why claims fall short.
Every improvement needs a policy review. That €15,000 bathroom renovation might add €20,000 to rebuild costs. Quality fixtures cost more to replace than install.
How the Average Clause Works: An Example
A home costs €320,000 to rebuild but is insured for €200,000, which is 62.5% of the rebuild cost. A flood causes €75,000 of damage.
Under the Average Clause, the insurer pays 62.5% of the loss: €46,875. The homeowner has to fund the remaining €28,125.
If the sum insured had matched the rebuild cost, the same loss would have been paid in full, subject to the policy excess and terms.
Tools & Resources to Avoid the Average Clause
Warning Signs You’re Already Underinsured
Your Premium Seems Suspiciously Low: Comparing premiums with neighbours? Yours significantly lower? Red flag. Insurance premiums reflect risk AND value. Underinsured properties generate lower premiums but lead to inadequate payouts.
You Haven’t Updated Cover in Three Years: Building costs rose 30%+ since 2020. If your sum insured hasn’t, you’re likely underinsured. Even index-linking might not keep pace with recent inflation. Manual review is essential.
Using Original Purchase Price Plus Inflation: Bought in 2010 for €200,000? Adding general inflation gives maybe €250,000 today. But the actual rebuild cost could be €350,000. Property purchase prices and rebuild costs follow different trajectories.
Estate Agent Valuations as Basis: Estate agents estimate market value, not rebuild costs. This is a different expertise and yields different figures. We’ve seen €100,000+ gaps between estate agent valuations and professional rebuild assessments on the same property.
Common Misconceptions That Cost Homeowners
Frequently Asked Questions about the Average Clause
Q: How often should I review my rebuild cost?
Annually at a minimum. After any improvements, do it immediately. When construction costs spike, don’t wait for renewal. Use any free rebuild cost reviews offered by your insurer.
Q: Can I challenge the Average Clause application?
Challenging it requires proving the insurer’s rebuild cost assessment is wrong, which is difficult without professional evidence from a loss assessor. It is far easier to make sure your cover is adequate before a claim than to dispute the calculation afterwards.
Q: Does the Average Clause apply to contents insurance too?
Yes, if your contents are underinsured, the same proportional reduction applies. Regularly value your possessions. A five-year-old TV isn’t worth its purchase price, but antique furniture might be worth more than you think.
Q: What if rebuilding standards have changed?
Modern building regulations often require upgrades during a rebuild (e.g., better insulation, accessibility, energy efficiency). These add costs and must be factored into your rebuild calculations. Your 1960s bungalow won’t be rebuilt to 1960s standards.
Q: Will my insurer warn me about underinsurance?
Your policy documents will tell you whether an Average Clause applies. It is up to you to make sure your sum insured is adequate, so review it at every renewal and after any improvements.
Q: Is the Average Clause legal?
Average clauses are a common term in Irish property insurance policies. Your policy documents will say whether your policy is subject to average.
Q: Do all insurers apply the Average Clause?
Most do. Some policies waive it if underinsurance is below a certain threshold (e.g., 15-20%), but these policies typically cost more. Read your documents and ask your provider explicitly. Never assume.
Check Your Cover Now
The Average Clause isn’t going away, but you can reduce its effect on you by keeping your sum insured up to date.
Check your sum insured against the current cost of rebuilding your home.
Calculate your rebuild cost properly. Get a professional assessment if needed. Update your sum insured. Pay the extra premium.
Finding out you are underinsured after a fire or flood adds money worries to what is already a very hard time.
A few minutes with your policy schedule now can save a lot of trouble later.
Expert Guidance from Regulated Professionals
This guide is based on decades of combined experience from our team of loss assessors. Trevor Kelly Insurance Claim Solutions Limited, trading as Insurance Claim Solutions, is regulated by the Central Bank of Ireland (Reg. No. C423441). We act for homeowners, not insurers.
Trevor Kelly — Managing Director
BSc (Hons) Building Surveying, Registered Public Loss Assessor
Led by Trevor, our team includes senior building surveyors like John Holland and claims staff, who act for policyholders from the first inspection through to settlement.
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Already facing claim issues? Worried about underinsurance? Our loss assessors can review your claim with you, deal with your insurer and its loss adjuster, and keep you up to date as the claim moves forward.
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Disclaimer: This article provides general information about insurance claims and the Average Clause in Ireland. Individual circumstances vary. Always consult qualified professionals for advice specific to your situation. Information accurate as of September 2025.