To avoid reduced claim payments under a reinstatement memorandum clause, the sum insured must be what percentage of the actual rebuilding cost?

The reinstatement memorandum clause is designed to protect the insured by ensuring that claims are paid in full for the cost of rebuilding or repairing a property after a loss, rather than being subject to a reduction in the claim amount. To avoid reduced claims, it is essential that the sum insured is aligned with a certain percentage of the actual rebuilding costs.

A sum insured of 85% of the actual rebuilding cost is the threshold commonly required in insurance policies that include a reinstatement memorandum clause. This means that if the property is insured for at least 85% of its actual rebuilding cost, the insurer will typically agree to pay the full cost of repairs or rebuilds without applying a reduction, provided that the damage occurs within the terms of the policy.

This percentage aligns with the principle of average in insurance, which mitigates the risk of underinsurance while allowing some degree of flexibility for the insured. Insuring below this percentage can lead to a scenario where the insurer might not fully cover the rebuilding cost, thereby reducing the claim payment. Hence, maintaining a sum insured at or above this level is crucial for ensuring adequate coverage and avoiding potential financial loss in the event of a claim.