When taking out a Buildings Insurance policy or reviewing your existing Building Insurance Schedule for your Commercial or Residential Property, it is worth understanding a variety of aspects of your policy which should be taken into account in the event of damage.
Damage can be caused through a variety of incidences which are out of the policy holder’s control. Flooding, explosions, fires and arson, storm damage or falling trees, vandalism and malicious damage are the most common reasons when making a claim.
It is worth checking what types of damage are covered within a buildings insurance policy, roofs, floors, walls and fitted or permanent fixtures such as fitted kitchens or bathrooms come under this type of protection; however possessions such as personal, freestanding and decorative items i.e carpets and curtains are not covered.
Most policies will also protect outbuildings such as garages and sheds within the grounds, however again it is worth checking as there can be exceptions.
What does Under Insurance mean when taking out a Buildings Insurance policy?
Buildings should always be Insured for the amount it would cost to rebuild them. However, fewer than one in ten commercial properties and household properties in the UK are covered correctly. If you are over-insured you are probably paying too much premium for your buildings insurance policy and if you are under-insured, then you face a reduced payout in the event of a claim whereby Insurance claims can be reduced by hundreds of thousands of pounds due to under-insurance.
How Adequacy of Sums Insured is defined
It is essential that your sums insured are sufficient for the risks insured and are reviewed at regular intervals. Otherwise claim settlements will only partially indemnify you for the losses suffered.
The declared value / sum insured must represent the cost of rebuilding the insured property as new (including the amount for debris removal costs, architects and surveyors fees ).
A condition known as ‘average’ would apply in the event where under-insurance is evident. The insurer has the right either to reduce your claim on a pro-rata basis, or to potentially reject it entirely if the under-insurance is significant.
An Example :
If you insure a building for a value of £100,000, in actual fact it should really be £150,000 so that it is under insured by a 1/3. Then in the event of a partial loss e.g. small fire, the final claim settlement would reduce by a 1/3. Any excess would then be deducted. This highlights the need to ensure accurate sums insured.
Building true rebuilding costs £150,000
Policy Sum Insured £100,000 (two thirds of true rebuilding costs)
Claim £12,000
Payment £ 8,000 (two thirds of what you would want)
For more information on calculating your buildings insurance policy accurately, please speak to the team here at JRW Risk Solutions. Policies can be designed to support the property owner, for a commercial or residential property, including Buildings Insurance (occupied, un-occupied and multi-occupancy, buy-to-lets and landlords who manage DSS, student and professional tenants, plus mixed portfolios) and Contents Insurance, Public Liability and Employer’s Liability, Loss of Rent, Cover of Legal Expenses, or Business Interruption Insurance.