Have you relied on your insurance broker to put an insured value on your properties for insurance purposes? Do you know for sure that the value he or she arrived at does in fact cover the full replacement value of your properties? How can you tell if it’s correct?
As a landlord you need to make sure that your investment is fully protected by a good insurance policy covering all foreseeable risks, based on full disclosure of all the risks by you the insured. You need to contact your insurers if anything material changes, for example if the property is vacant for longer than is stated in the policy.
A good landlord policy will do all that, and perhaps more importantly, will protect you against third party claims. These could be, for example, for injuries to your tenants, their visitors or to members of the public – potentially third party claims could be far greater than the loss of the bricks and mortar value in your property.
The market value or the price you paid for your property may not bear close comparison to the true cost of replacing the property in a total loss situation. Replacement cost is the key to insurance because insurance contracts are based on the indemnity principle: this means that after a claim, in theory, you should be placed in the same financial position as you were before the occurrence of the insured event: no worse off, and having made no financial gain.
If you are under-insured, and this could easily be the case with rising prices, building materials costs, site clearance, professional fees etc., you will be subject to what insurers call “averaging”. In other words a house of full replacement value £500,000 would be under insured by 20% if you had put an insured value on it of £400,000. Therefore, any claim you make would be paid out, providing you met all the other insurers’ conditions, less 20%.
The Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS) produces a range of detailed guidance on the cost of rebuilding standard houses and flats. The Association of British Insurers (ABI) has commissioned BCIS to provide the general guidance included in checking your sum insured and provides a calculator on its web site – see link below.
However, in the case of unusual properties such as very old, listed, conservation area, thatched or most commercial properties, these are difficult to value in a standard way, so you should get a professional insurance valuation carried out by a chartered building surveyor.
Most insurers will then index link the annual premiums so that you maintain an accurate insured value over time, but of course this is all dependent on you getting the value right in the first place.
Never rely on your broker’s valuation because the broker is your agent, not the insurance company’s agent – any mistakes the broker makes are your mistakes. If your broker gets the value out, under-insuring by 20%, as in the example above, any claim you make will be averaged, that is to say, reduced by 20%.
Find the best landlord insurance policies – www.landlordzone.co.uk/directory/suppliers-directory/insurance
Building Surveyors – www.landlordzone.co.uk/directory/suppliers-directory/surveyors
Building Cost Calculator – https://calculator.bcis.co.uk