So what is under-insurance
When the sum insured is not enough to cover the full value of a claim, this is described as under-insurance, i.e. if you insure your property for less than it’s worth.
Many landlords fall foul of the ‘average clause’ curse under their property: When a property is under-insured, any claim settlement will be reduced in direct proportion and the agreed loss value will be far lower than what may actually be owed to you.
In other words, the insurer will be able to reduce their liability for a claim by applying a proportionate approach. This means that landlords who under-insure their property could potentially lose out on thousands of pounds’ worth of claims that could have been easily avoided.
So why do landlords under-insure and take the risk
The view point of ‘it will never happen to me’ way of thinking is not one you should stick with. Landlords have ultimately lost out financially by choosing this option when they later needed to make a claim. A landlord’s property is very often his or her biggest asset and is worthy of a lot more attention. At the end of the day, it is the responsibility of the insured party, i.e. the landlord, to calculate and declare the value of the property for which they are taking out insurance. You, the landlord – not your insurance broker – are entirely responsible for the value of your property
Insurance brokers rely on the figures that the landlords provide to be a correct and accurate reflection of the value of the home and everything in it.
Another common reason for under-insurance falls under the category of ‘home improvements’
Many landlords invest significant time and money into making improvements such as adding an extension, building a conservatory, or refurbishing the living spaces. All of these are aspects that will significantly increase the value of the property and its rent-able return and, you guessed it, this will also increase the insurance value, too!
You may have got it right, when you started
One of the most common under-insurance scenarios occurs when a property owner has taken out an insurance policy in, for example, the year 2001 for £100,000 and continued to renew it year after year without making any updates. This renewal of the same policy does not take into account market inflation.
For example: According to Right-Move statistics obtained from the Land Registry, a three-bedroom flat in Brighton sold for just over £100,000 in 1999; in November 2014 the same property sold for £320,000.
Further statistics from the Land Registry show that overall sold prices in West Hampstead, London, during 2014 saw an increase of 12% in comparison to 2013 and 27% since 2010. These rising figures have been mirrored in many areas across the whole of the UK.
Don’t be sorry, be safe
Rather than having a nasty surprise, why not be safe and check to see if your property has the correct level of insurance and that you are paying a competitive price for your building insurance cover at; http://www.landlordsandtenantssupport.co.uk/landlord-insurance