Insurance - Reinstatement Memorandum

Published: 02nd October 2010
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Provision 4 is usually known as Reinstatement Average, and it is sufficiently common in ARPI and other insurances to be known simply as the "Reinstatement Memorandum". It is unlike normal average in that it applies to the cost of reinstating the property at the time of reinstatement, rather than at the time of loss. It exists to take into account the prejudice caused to insurers by an increase in building costs during any delay between the time of loss and the commencement of rebuilding. It is therefore a method of protecting against inflation.

In essence, the reinstatement memorandum means that average will apply if the sum insured is less than 85 per cent of the total reinstatement cost, i.e. the sum insured is compared with the value of the property on a reinstatement basis at the time of reinstatement. The figures are calculated in two stages. The first is to assess the position at the time of loss. Where the sum insured is less than the value at risk, average will clearly apply. The resulting figure is effectively paid on account on an indemnity basis. If the insured decides not to reinstate the property, that is the end of the matter. Where he then goes on to reinstate, then the cost of reinstatement at the time of reinstatement is compared with the sum insured under the policy. Where the sum insured at the time of reinstatement is less than 85 per cent, average will apply. Effectively, average is projected forward from the time of loss to the time of reinstatement.

If the insured then rebuilds, the sum of 46,875 is treated as being made on account. When the property has been reinstated, the reinstatement memorandum is applied to ascertain whether average need be applied, i.e. whether the cost of reinstatement at the time of reinstatement exceeds 85 per cent of the sum insured.

Willis J. Watson is a freelance writer since 2006, living in United States and he writes about he enjoys the policies. If you want to read more informations about Landlord Insurance Quote and also read more reviews about Commercial Insurance Quotes, you can check out his websites.

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