Landlords have been warned not to try and make false economies by saving on their insurance premiums.
The warning has come from Michael Portman, managing director of tenancy referencing and insurance firm Let Risks. He says that in the current financial climate, landlords are trying to keep their premiums low to make savings.
The result, he says, is that there has been a large rise in the number of private rental properties that are “significantly under-insured”.
He warns that landlords may face a large shortfall in insurance payments in the event of a claim and risk being unable to raise the funds for the work, leaving them with lost rental income and a property unfit for tenants.
Portman said: “In one case, a landlord was left out of pocket by more than £4,500 after suffering a claim for theft and malicious damage. A claim was presented for £8,250 and following the appointment of loss adjusters, the building sum insured was deemed to be inadequate. Unfortunately, the final settlement due to the policy holder was scaled down proportionately to less than half of the agreed repair amount.
“It is important that landlords check that their insurance policy is sufficient to cover the full value of rebuilding the property. They need to look at the levels of cover rather than the premium. In the event of a claim, if a landlord is found to be under-insured, most insurers will apply ‘average’, allowing them to reduce any payments.
“For example, a claim was presented for a fire which caused £25,000 of partial damage. This was deemed excessive following the appointment of loss adjusters and a figure of £14,195 was eventually agreed to form the correct basis of reinstatement. However, it was established that the sum insured was only 76.5% of the value at risk (£162,000, although the property was under-insured at £124,000).
“The policy condition of average therefore applied, proportionately reducing the insurer’s liability to £10,865. Following a deduction of the £250 policy excess, the eventual settlement was £10,615, leaving the landlord with a shortfall of £3,330.”
Landlords should take professional advice if they are unsure, or use the free rebuilding cost calculator supplied by the Building Cost Information Service: