Landlords - avoid the nightmare of being under insured

February 2010

Competitive premiums and value for money are of course very important but ensuring you have appropriate cover is paramount. In the event you have a loss and the sum insured is too low the consequences can be financially catastrophic.

As such it is essential that you, as a landlord correctly insure your property for the right sums. For buildings, this means the full cost of rebuilding your property including any outbuildings, plus an amount for any extra charges that could be involved in rebuilding, such as demolition costs, architects’ and surveyors’ fees and complying with the requirements of local authorities.

So how are ‘buildings’ defined by your insurance company?

Buildings are usually defined as ‘the property and it’s permanent fixture and fittings, swimming pools, ornamental ponds and fountains, hard courts, terraces, patios, drives, footpaths, walls, fences, gates, hedges contained within the boundaries of the land.’

How do I establish the sum insured?

When you purchased your property undoubtedly you would have needed a valuation carried out. This would give you the market value of the property and also a reinstatement cost for insurance purposes. The latter is the figure upon which your insurance policy should have been arranged on purchasing the property. Subsequently the Buildings Sums Insured in your Schedule should have been adjusted monthly and updated each year at the renewal date in line with any increase in the level of the House Rebuilding Cost Index (prepared by the Royal Institute of Chartered Surveyors). As such your Insurers renewal notice should give you an up to date index linked sum insured.

However if you have not insured on this basis previously you will need to establish the reinstatement costs. This can be done by instructing a surveyor to carry out a reinstatement survey. Alternatively you may wish to visit the following website provided by the The Building Cost Information Service of the Royal Institution of Chartered Surveyors which provides a free calculator and advice on how to establish a sum insured taking into account area, age, type of property and square footage. calculator.bcis.co.uk

What if I am under insured at the time of a claim?

If you are under insured your Insurers will reduce your claim settlement. Different policies apply different means of settling claims in such an event but it is likely that Insurers will apply what is known as a ‘condition of average’. This effectively means that your claims will be reduced in proportion to the level of under insurance, so you are in effect self insuring a percentage of your property in proportion to the level of under insurance. This could mean that in the event of a serious incident your property letting business is exposed to a large financial loss.

Alternatively your Insurer’s Policy may state that in such an event the claim will not be settled on a ‘new for old’ basis but rather a deduction for wear and tear will be made. Again this has financial implications for your property letting business. The worse case scenario may be that your Insurers consider that the declared rebuilding sum insured represented a misrepresentation of material information and look to void the policy altogether. In short, you have no insurance and no ability to make a claim.

So it is critical that when purchasing Landlords Buildings Insurance that not only do you get a good deal but that you get good advice, ensure your sums insured are adequate and that the policy provides good quality cover.

For more information or an insurance quote please contact Joe Manning at Towergate Risk Solutions Sevenoaks on 01732 747 750 or email joe.manning@towergate.co.uk