Tips to help you buy insurance for your let property
Average Clause (relates to underinsurance)
This is usually found in the policy wording and relates to the sums insured.
When you select the cover you need, you will often be asked to provide the rebuild cost of the building, and the cost to replace your contents. Seek expert advice from a qualified surveyor for the buildings and prepare an inventory for your contents to work out the correct sums insured.
Bedroom rated insurance policies help take out the guesswork with a maximum sum insured.
If you get it wrong and underinsure, the average clause is there to ensure fairness in a claim. When your premium is calculated based on the sums insured any claim paid will be based on the proportion of the property the premium reflects.
Property rebuild = £100,000 but insured for £87,000
Underinsured by 13%
Fire damage causes a claim for £8,000 damage
The insurer pays £6,960 less the excess to the insured
The shortfall of £1,040 is not insured (no premium paid for 13% of the risk)
*A policy excess may also apply to the amounts quoted above.
Buildings or Contents?
Check the definitions within your policy wording to ensure that your property is insured correctly. Not all insurers have the same definitions. Generally, if you consider the buildings as a dolls house, whatever would fall out if you tip it upside down is contents, and the remaining items would form part of the buildings. Carpets, however although often stuck down would normally be contents.
Important additions to the standard policy wording. ALWAYS read through your policy documentation carefully before and after buying cover. Sometimes endorsements enhance the policy giving additional cover however they can increase the excess to one or more sections, or mean the addition of terms that apply to the policy.
Example (based on a quotation found online)
Quote from XYZ Insurance - £145.00 inclusive of IPT
Cover - £500,000 Buildings
An 'Endorsement' button found at the bottom of the quote revealed a £4,000 flood excess.
TIP - always read the small print
Escape of Water and Flood
Check your policy wording to ensure that you understand your insurer's definition of these perils. Not all insurers have the same definitions. Many policies do not provide any definition of what a flood is.
The Financial Ombudsman says: We take the view that a flood does not have to be a sudden and violent event. We generally say that flooding can happen where water enters (or builds up in) a property slowly and steadily - and it does not necessarily have to be caused by the forces of nature. So water escaping from something inside a property could be the cause of a flood just as a river bursting its banks can. It is the fact that water has built up and caused damage that it is important. However, damage caused in this way is usually covered by insurers anyway under the escape of water peril.*
Escape of Water claims tend to be from leaks or burst pipes, household appliances (washing machines, dishwashers, etc), bathroom leaks - showers, baths, etc.
Home Insurance v Landlords Insurance
If you decide to let your property you MUST tell your home insurer that there is to be a change of use. Some home insurers will allow the change and cover the risk. Not all policies are suitable for both risk types.
Home insurance is rated on many factors, including the use, and occupiers of the property. Tenants, although referenced may not show the same duty of care as the owner occupier of a home. The risk is different, although not necessarily higher in cost.
Warning - if you do not let your insurer know of the changes of use the policy may not act to protect you in the event of a claim.
Loss of Rent Cover
This covers your loss (of rent) following an insurable incident where the home is uninhabitable and the tenant needs to move out temporarily.
IMPORTANT - THIS DOES NOT COVER LOSS OF RENT DUE TO A TENANT FAILING TO PAY THE LANDLORD - the cover required for this is Rent Guarantee Insurance.
Malicious Damage by Tenant
Tenants causing damage with intent as a malicious act to your property is defined as malicious damage by tenants. Some policies include this cover, but many exclude this cover.
Premium - the price you pay (and fees)
Quotes should state the full premium inclusive of Insurance Premium Tax. Be aware of any extra fees charged - at inception, renewal or mid-term. Sometimes a very low cost premium may incur fees should you wish to change something on the policy.
Property Owners Liability
This cover protects you as the Landlord should a third party (tenant, letting agent, tradesman) become injured or their property is damaged and they decide to sue you.
You are also responsible under law for defective premises even if the tenant caused the defect. In the case of Hannon v Hillingdon Homes Limited* the tenant had removed the banister which deemed the premises defective. A tradesman who worked on the premises was injured as a result and the landlord was found to be responsible, even though the landlord defended that they were unaware of the changes to the property.
* Sources: http://nearlylegal.co.uk/blog/2012/08/mind-the-step-2-the-bannister-that-wasnt/ and http://www.laytons.com/property-notepad-articles---december-2012/defective-premises---contrasting-decisions.asp
Subsidence, Heave and Landslip
In 2011, the FSA published the following definitions:
- Subsidence - downward movement of the ground beneath the buildings other than by settlement
- Heave - upward movement of the ground beneath the buildings as a result of the soil being expanding
- Landslip - downward movement ground
An insurer will want to know the cost of rebuilding the property and if contents are to be insured, the replacement costs. Insurers rely on the policyholder to provide this information. You should also factor in other costs with rebuild costs to include debris removal, architects, surveyors, consultants and legal fees, VAT and the costs of complying with the local government's requirements (disabled access, etc). Please also read ''Average Clause'.
As a commercial policy, a landlord's Buildings and Contents policy will often exclude Terrorism cover. Insurers often allow it to be 'written back in' to provide you with protection in the event of a claim that occurs due to an act of terrorism. ALWAYS read your policy wording for your insurer's definition of terrorism.
Trace and Access
Your policy may cover 'escape of water' however have you included 'trace and access'? This provides cover for the cost incurred to find a leak causing damage, and repair the source of the damage, subsequently making good. The pipe that needs repairing may not be covered, if the leak is due to wear and tear which is a maintenance issue.
How much cover does your policy provide, if at all? There will be a separate limit for this cover, often ranging from £nil, £1,000 to £5,000. Check the terms of your policy to ensure you have the cover you need.
Our largest claim was for Trace and Access was for £20,000.
Water was flooding on our policyholder’s newly laid driveway. We covered the cost of the contractor digging up the driveway, finding the leak and re-paving, returning the property back to normal. The leaking pipe was not covered due to it being a maintenance issue, however the cost to replace this was less than £5.
Our standard policy provides Trace and Access cover with a limit of £25,000.
Void Periods = Unoccupancy
You will want to avoid periods when your property is unoccupied, however when you do it is important that you check your insurer's terms and conditions whilst the property is empty.
We can often help our existing policyholders insuring their property under our Landlord Buildings and Contents policy with cover during periods of unoccupancy. Terms and conditions will apply.
Remember - even if you have contactors working on the premises, if no-one resides there, it is 'unoccupied'.
This covers you for damage such as breakages, burn marks, etc caused due to negligence.
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