Many landlords do not understand the serious consequences of underinsurance or how to calculate the right figure to make sure their properties are covered.
A popular misconception is that you should insure the property for its purchase price or market value, but the insurance cover should be based on the physical rebuilding cost of the property.
Most of us understand that if our property is insured for £100,000 then that is the maximum amount we could receive from an insurance claim. What is harder to understand is how underinsurance can affect smaller claims. If the true rebuilding cost of a property was £150,000 compared to the £100,000 it was insured for, then insurers would reduce the payment of smaller claims in proportion to the underinsurance.
Using the figures above, if you had a fire in the kitchen causing £9,000 worth of damage the insurers would say you have covered two thirds of the property with them. Therefore they would pay only £6,000, and you'd be left to find the shortfall of £3,000. It is crucially important to cover your properties for the correct rebuilding sum insured so that in the event of a total loss you will receive full payment without any deductions on smaller losses.
While your insurance broker can give general guidelines as to rebuilding costs, you should really ask a professional surveyor to advise you. He/she would take responsibility for that advice in the event that it proved defective.
If you own a property that involved a survey, then it is certain that an opinion will have been given on the rebuilding cost at the time of purchase.
Another option is to view the BCIS website (www.bcis.co.uk), which contains up-to-date rebuilding costs data for straightforward residential properties, to help you calculate the cost yourself.
Buy to let insurance cover for the correct rebuilding figure will ensure you are fully protected in the event of a loss. Any additional outlay in premium now will seem modest indeed when compared to the shortfall in a claim payment caused by underinsurance.
The Money Centre has teamed up with the Alan Boswell Group to offer exclusive buy to let insurance for landlords. For an online quotation click here
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