Insurance – Make Sure You Have Enough

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Insurance will often seem money for nothing; most of us live quiet, peaceful lives and, though anyone can be burgled, or have a fire, this will be an unknown quantity until the day arrives when the odds are not on your side. 

For private sector landlords, insurance is not a nuisance, is not money for nothing but is a necessary requirement for their business. It also has to be said that private landlords may find that their rented properties are at greater risk than the properties which they live in.

It seems harsh to say it, but tenants may be less concerned about safeguarding their homes because they don’t own them. The tenant should insure their personal contents, but the landlord is responsible for insuring the building; a candle left burning could totally destroy the contents, but also could do severe damage to the building.

The first claim a landlord has to make on his buildings insurance should be a straight-forward, if a little distressing, process. Provided landlords have taken advice and not tried to beat down the cost of the insurance, then the claim will be successfully processed, and the property restored to its’ original condition. 

But what of those who do not understand the cost of re-building and the additional costs of demolishing the property, removing the bricks and the rest of the rubbish left from demolishing, work to the foundations and work to restore gas, electricity and water. In addition, there will be professional costs, perhaps of architect’s plans, building services etc.  The sale value of the house is only part of what the insurance would cover – insurance cannot be based merely on market value.

It gets worse. If the property is under-insured, by perhaps 50 per cent, then the claim is reduced by that amount. 

So, a property worth £200,000 is insured for £200,000. Unfortunately, the property is burned to the ground. The insurance assessor inspects and finds that the re-build costs, together with the professional services, will be £300,000. The landlord kicks himself but thinks he will get £200,000. Sadly not. The property was under-insured by 50 per cent, so the value of the claim is only £100,000. Not enough to re-build, but just enough to be a constant thorn in the landlord’s side – it was their poor judgement that has left them badly out of pocket.

Landlords cannot work this out for themselves, unless they have a skill set that involves being a chartered surveyor. Only a qualified chartered surveyor who has access to the Building Cost Information Service (BCIS). These are the rates used by the insurance industry to calculate the full re-build costs of properties. Discuss with your landlord’s association or accreditation scheme – they may know of a local Chartered Surveyor. It is even possible that they will offer a discount if they work closely with the association concerned.

Although insurance companies would probably advise that a Surveyor be consulted every year, if you ensure that you have a correct valuation one year, you at least have a starting point and whilst you may have to adjust every year, you will be nearer than if you start with a market valuation only.

For advice on buy to let issues – Ask Sharon

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