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Friday, 28 February 2014

Guest Blog: The Pitfalls of Property Insurance

By David Whitby, Commercial Insurance Specialist at Cottons

After working with landlords on a daily basis for a number of years, common traits regarding their attitude towards insurance become noticeable. Naturally not all property landlords are the same, however it is alarming how little many landlords know about the type of insurance cover they have in force. Most will buy insurance over the internet believing their property assets are fully covered, which is not always the case. 

The general attitude of insurance is one of  ‘I don’t want to spend my money on something that potentially won’t happen’. As insurance is a non-tangible product, it is human nature to have this attitude. When you spend several hundred, or thousands of pounds, you are expecting to receive more than some pieces of paper and a policy booklet. You only see the benefits of your purchase in the event of a claim, and even then, you aren’t sure as to the level of service you will receive. It is in the event of a claim where you will find out whether you are covered correctly and whether the money you have spent on your insurance policy was justified.

The most common landlords’ insurance policy sold is your basic ‘no frills’ Buildings cover with Property Owners’ Liability. Generally, this would cover the building only in the event of the following perils: Fire, Lightning, Explosion, Aircraft, Earthquake, Riot & Civil Commotion, Theft or Attempted Theft, Storm, Flood.

Note that the above does not include any mention of Accidental Damage or Malicious Damage. These covers are not written into every property insurance contract, so if it is something that you require,  then it is advised that you request them.

Your buildings will be covered based on the rebuild value of your property. This shouldn’t be confused with the price you purchased the property. You do not want to be paying more than you should for an insurance policy by being over-insured, but also, should you be underinsured, insurance companies will apply the condition of ‘average’ and you will not receive the full amount for your claim. For example if you were to insure a building for £100,000 but the rebuild value was £120,000 and there was a fire causing £20,000 worth of damage, insurers would only pay you £16,666.67. Should you have any queries relating to the rebuild cost of your property, please use the link below which will forward you to the Association of British Insurers ‘Rebuild Calculator’:

The area of contents cover should also be highlighted as different insurance companies will have differing definitions of what constitutes contents cover. The main culprit with the differing definitions is that of carpet. Some insurers classify carpets within the buildings cover, whereas others include it within contents. 

Another scenario that you should consider is financial loss - imagine your property were to suffer from a fire which caused £20,000 worth of damage to the buildings and contents, whilst also rendering your property uninhabitable. You would expect your insurance to pay out this amount to get your property back into the same state it was in prior to the loss. But what about the impact with regard to your tenants? Where would they live whilst the property was uninhabitable? Who would be paying you rent? You can include Rent Receivable and Alternate Accommodation into your policy to cover your financial loss as a landlord if this were to happen.

Other claims that can arise are those of a legal nature. All landlord insurance policies include a basic cover of £2 million Property Owners Liability – more commonly known as Public Liability. Should a tenant or person(s) visiting the property suffer an injury due to any defects in the property, this will indemnify you for any costs incurred. Other legal add-ons you may wish to consider are Employers’ Liability and Legal Expenses. For example, should you employ any person(s) to look after the upkeep of your property, it would be advisable to include this within your cover in case of injury whilst working for you. Legal Expenses will indemnify you for any legal fees such as Property Disputes, Repair & Renovation Disputes and Health & Safety Prosecutions. Indemnity limits and cover provided are subject to which insurance company you choose. Legal Expenses can be expanded to include Rent Indemnity, whereby should a tenant default on their rent, you will be indemnified accordingly.

If you are require any further information with regards to the topic of this blog or Commercial Insurance please do not hesitate to contact or call 0161 216 4020.

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