The Importance of Up-to-Date Property Valuations
Account Executive Suzi Forder looks at why you should have a current property valuation for both residential and commercial properties and some of the dangers if you don’t.
You might assume that, because you had a valuation when you bought your property – and your insurance policy is index-linked – that the rebuild value of your property remains accurate years down the line.
Unfortunately, that’s not always the case.
In fact, valuation specialists Barrett Corp & Harrington say that, on average, 81% of the properties they survey are underinsured by 39%.
Well, there are many factors involved. Often the rebuild value of a property increases because of changes to:
- The area you live in
- The rarity of construction materials
- The availability of skilled workmen, especially if you have a non-standard property.
There are sometimes cases of over-insurance too. This is usually caused by the policyholder advising the insurer of the market value of the property (i.e. the cost to sell it) rather than the rebuild cost. In almost all cases, the rebuild value is less than the market value and it means you could be paying more than you need to for your insurance policy.
What about Commercial Property Insurance?
It can be daunting for businesses to ensure their properties are adequately insured, regardless of whether the property is VAT elected or not.
Many businesses ensure that their properties are VAT elected. That means, in the event of an insurance claim, VAT is not picked up by the insurer. The property owner covers the costs and claims it back via HMRC.
When you undertake a full valuation of a commercial property, it will always state that the value of the property excludes VAT. If your commercial property is VAT elected, this is the figure to use when obtaining insurance.
If you’re not VAT registered/elected you must always ensure that VAT is added to your valuation so that the sum insured is adequate. If you don’t, your organisation will have to cover the cost.
The question of elected/non-elected VAT is more confusing for registered charities. In most cases, they can only claim back a small proportion of VAT, usually at 4%. As a result, they need to ensure that they increase any valuations by 16% – or whatever the difference is – to account for the shortfall because they can’t claim back VAT.
Professional Property Valuations
A recent change in insurance practices has seen a new feature added to policies. The new ‘waiver of average’ applied to buildings valued within the last three years by a Royal Institute of Chartered Surveyor (RICS) member. If it transpires that a property is underinsured by, say, 25% when claiming for a partial loss, the client will still receive a 100% settlement (rather than 75%).
By ensuring that a valuation has been carried out on your property within the past three years, you will always receive 100% of the claim payment, providing that you have a ‘waiver of average’ in your policy wording.
If you don’t have this in your wording, you’re likely to have an ‘average clause’ applied. This means your claim settlement will be reduced in proportion to your underinsurance. Using the example above, if you were underinsured by 25%, your claim settlement will be reduced by 25%, meaning you have to make up any shortfall.
Another positive outcome of undertaking a full valuation is that three years down the line, the surveyor can carry out a desktop valuation at a greatly reduced cost. In doing so, you can ensure that your re-build figure remains correct.
In fact, if your property is of standard construction and relatively new, inexpensive desktop valuations can be carried out from the outset.
So, to sum up, the benefits of an up-to-date valuation are:
- It ensures your buildings sum insured is adequate, so claims settlements cover your costs.
- It speeds up the claims process. The insurer or loss adjuster can focus on the claim rather than any underinsurance issues, which might delay the repairs and lead to potential unrecoverable increased costs.
- It demonstrates good corporate governance for any business, helping to protect the rights of directors, employees and shareholders in the event of any insured major disaster.
- It prevents the loss of buildings with historic or environmental value due to a lack of funds.
- It provides peace of mind to all parties of the insurance contract.
If you have any questions about property insurance and sums insured, don’t hesitate to get in touch with Suzi on 01223 792271.
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