This is a question often asked of the team at Vista Insurance Brokers, and, whilst they cannot provide specific advice on how much you should insure your property for, they have given us some useful information to share with our members.
Firstly, says Mike Brierley, who looks after the NWLA scheme at Vista; it’s worth mentioning what’s meant by the term “sum insured” – which is what you’ll be asked to provide when insuring your property.
In brief, this is the amount of cover you will need to fully reinstate your property.
Here’s what you should be thinking about when calculating your sum insured.
Contents – this should be relatively easy to calculate and would usually involve doing a self-inventory of any furnishings, including carpets/underlay and removable appliances, within your property and its outbuildings.
Vista’s policy automatically covers landlord’s contents up to £20,000 so quite often, that’s an adequate amount but please do a check, all the same.
Buildings – here’s where it gets more difficult because you’ll need to know the amount it would cost to reinstate the whole property in the event of a total loss.
Think of the worst-case scenario and make sure you include the main structure, outbuildings including sheds and greenhouses, driveways, paths, gates, fencing, decking, patios. Then remember to add debris removal and professional fees for surveyors and architects.
Remember – the market value of a property can differ quite significantly, from the reinstatement sum insured, so don’t fall into the trap of insuring your property, based on its market value!
Underinsurance – what if you get the sum insured wrong?
Property insurance claims settlement works on the basis of the full reinstatement sum insured.
No matter what the size of claim, if you’re underinsured overall, then the Insurer can reduce your claim by a proportionate amount.
For example Claim amount £50,000
Underinsurance amount 50%
Claim settlement amount £25,000
It’s not surprising, says Mike; taking all this into account, that only a qualified surveyor can value a property.
The Royal Institute of Chartered Surveyors provides some guidelines on calculating reinstatement costs, but not all properties are the same, so we always suggest getting a professional valuation.
Bearing in mind that building materials and labour can vary over time, we’d also suggest getting a reinstatement valuation every 3 years.
Insurance policies provide index linking as some protection but that doesn’t necessarily take into account additional expenses you may have incurred such as building an extension, installing new glazing/fixtures and fittings.
Mortgage valuation surveys should provide the reinstatement sum insured. Bear in mind though that is based on the standard of property at the time of valuation. Remember to take any upgrades or renovation work into account.
Royal Institute of Chartered Surveyors’ Website not only provides lots if useful information and guides but also helps you to find a RICS qualified surveyor in your area.
Association of British Insurers’ Website provides a handy home rebuilding calculator for general guidance.
And finally – if you need to increase your sum insured, don’t wait until your policy renewal date – adjustments can be made during the entire period of insurance.
Mike and his colleagues at Vista can be contacted on 0161 393 7111.
The Northwest Landlords’ Association is an Introducer Appointed Representative of Vista Insurance Brokers Limited which is authorised and registered by the Financial Conduct Authority (FRN: 717743