What to ensure when you insure.

This months focus is on buildings insurance and why you should review your existing cover.

A critical issue is to ensure that the insurer is aware of all of the details of your property including its build date, type, any areas of flat roof, construction method and the terms of its occupation. I am concerned with the increase in those obtaining quotes from internet platforms that full disclosure of facts is possibly less detailed than was historically the case.  A lack of correct detail could mean an insurer could refuse a claim.

Assuming correct cover is in place, there are a number of issues that property investors should take into account when considering building insurance. The first one to consider is for those of you who have an existing policy which is being renewed.

It is always worth enquiring as to whether the building sum is index linked. That means that the rebuild sum that your property is insured for is increased each year, normally in line with inflation.

Whilst on the face of it this is a great idea as it covers you for increased material and labour costs in the event your property needed to be rebuilt however in our current climate of low inflation rates it may be that the index linking is at a greater rate than inflation. Or, as was the case in 2008 – 2011 that building costs, principally labour costs, actually fell.

Left unchecked for a few years and you may find that you are paying an insurance premium for a sum far greater than is required. Bear in mind if this were the case and you claimed, you would still only receive the rebuild cost.

It may therefore be that you are paying a higher premium than is necessary. Alternatively if your policy is not index linked and you have not had a reinstatement valuation undertaken recently, you may find that you are not adequately covered.

Another issue to consider is what conditions or endorsements are buried in the insurers policy documents that you may have to comply with to ensure cover.

There are a myriad that could be included however some of the more common ones I have seen over the years include a need to drain down water systems if the property is to be vacant for more than 14 days, landlord legal cover which only applies if the tenants have been served notice by recorded delivery, the prohibition of letting to tenants referred to you by a local authority or housing association, an exclusion from granting anyone a tenancy for more than 12 months, an obligation to provide gas and electricity safety certificates to the insurer and so on.

As well as complying with the requirements of your insurance, it is important that you ensure that your policy meets your needs. For example a standard building policy is likely to be worthless if your strategy is serviced accommodation. There are insurers who will provide cover for such activity so just ensure that the one you buy meets your requirements.

Many standard insurance policies reduce cover for vacant property to what they call FLEA cover. On this basis you are covered for only claims relating to Fire, Lightening, Explosion or impact by Aircraft. Clearly if you want additional cover for say the escape of water, break ins and the like then you are going to have to enquire whether the insurer will cover these. Regardless, you will probably find that if your property is vacant you will need to arrange for it to be inspected at set intervals and to ensure that the letterbox is securely sealed so as to reduce the risk of arson.

There will also be a clause in your policy which requires you to comply with any statutory obligations and these will include gas and electricity inspections, fire risk assessments, legionella risk assessments, party wall legislation as well as any planning and building control requirements. For this reason alone it is imperative that you ensure that your files are complete and your property compliant.

Those of you who have portfolios of property with one insurer will be aware that it is not uncommon for them to undertake visits to the property to ensure compliance. Any recommendations made during these visits should be complied with in a timely fashion to ensure the continuance of cover.

For the duration of any mortgage you will be required to have appropriate insurance as a condition of your loan.  So falling short on your insurance cover could also place you in breach of your mortgage conditions.

If there are any issues that you do not understand within your insurance policy then ask your broker or contact the insurer directly. Furthermore if you are planning on any changes to the property, its occupiers or use, then talk these through with the insurer at the outset. As with all of these things it is far better to get your house in order before you need to claim rather than when you need to claim.

Only this month one of my Clients with 40 years experience as a landlord confessed that she’d never read the policy documents. I suspect there are many like her but having read this article I hope that number will now not include you!

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