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Landlord Underinsurance - Don't Get Caught Out

24/02/2022

Hopefully the above image won’t become a reality for you, but if you are unfortunate enough to suffer a fire, flood, storm or other insured event you will not want to be penalised for not having set your insurance cover adequately.

By taking a few simple steps you should be able to ensure that cover is set correctly and that you are fully indemnified by your insurers.

In the event of damage, insurers will meet the full cost of repairs, subject to any excess, provided that the buildings are adequately insured.

At the inception of the policy, and at renewal, when setting the sum insured this should reflect the full rebuilding cost of the buildings. This would include not just the main building but also :

  • Any outbuildings at the insured address
  • Walls, gates & fences
  • Landlords fixtures & fittings
  • Car parks, yards, paved areas, roads, pavements & footpaths
  • All belonging to you as the policyholder or for which you are legally responsible

Having identified what items need to be insured on what basis should the cover be set?

At the date the policy is incepted the sum insured should allow for the following:

  • Cost of rebuilding the premises
  • Any additional costs to comply with Public Authority requirements
  • Professional fees ie to cover the cost of employing surveyors to scope, source and oversee the rebuild of the buildings
  • Demolition and removal of debris
  • VAT – to the extent that you will not be able to recover VAT on the rebuilding costs you will need to add this to the calculation i.e., if you are not VAT registered then you will need to add VAT at 20%

How do I calculate the rebuilding cost?

  • Calculate the overall internal floor area of the premises – this will need to be multiplied by the number of floors i.e. if the ground floor measures 100m² and the building has 3 storeys, then the overall area is 300m²
  • Apply a rate per m² to the overall floor area. The rate will reflect the age, size, location and condition of the property. You will need the advice of a building surveyor to determine the appropriate rate. We can offer a valuation service which may also be of assistance
  • Valuations can be undertaken on a desktop basis and if there is an interest for this service please make contact with us
  • Add on allowances for outbuildings, drives etc as above
  • It would be normal to allow 7.5% of the rebuild cost to cater for demolition
  • Professional fees need to be added to the above total. Allowing 15% for fees of the rebuild value, including demolition, would be in order
  • VAT should be added to the above total if you are unable to recover VAT

Do I need to allow for inflation?

The policy that Vista arrange makes provision for inflation and the sum insured is adjusted monthly and in line with the House Rebuilding Cost Index prepared by the Royal Institution of Chartered Surveyors.

What are the consequences for being inadequately insured?

Under the terms of the policy that Vista have arranged, insurers state that if the sum insured is less than the full rebuilding cost (calculated at the inception or renewal of the policy) of the buildings, they will pay the cost of repair or replacement less a deduction for wear and tear.

Is it worth the risk of being underinsured?

Talk to us, it is likely that the additional premium that you would pay to increase the sum insured, if it was set too low, would be negligible in comparison to the deduction that could be made to the claim settlement.

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