For Leaseholders and Resident Management Company Directors, the topic of buildings insurance is a hot one.
An accurate valuation of the rebuild cost for your block of flats is paramount to guarding against under or over insurance.
Inaccurate valuations put you and the property owner at risk- here we’ll be discussing why, and how, to avoid the pitfalls of securing appropriate insurance coverage for your block.
What is “Declared Value” or “Buildings Sum Insured”?
It’s likely you will have seen one or the other terms in your flats insurance policy wording. It’s also likely it could be misunderstood. So, to clarify:
Declared Value or Buildings Sum Insured is the rebuild (or reinstatement) value of the property, the difference is simply how the insurance contract handles inflation during the insured period. To read about the difference between Buildings Sum Insured and Declared Value go to http://flatliving.wpenginepowered.com/what-is-the-difference-between-sum-insured-and-declared-value/
The Building Sum Insured for your property is the maximum figure the insurer will be willing to pay out to rebuild the property from the ground up, according to its current design and specifications. The valuation includes demolition, materials and professional labour costs.
This is the figure your insurance coverage, and therefore your premiums, will be based on, so it’s vital that it is accurate. The valuation should include any outbuildings, gates, fences, underground pipes and cables.
Most policies are index-linked which helps to ensure that your sum ensured remains adequate, provided of course the base figure upon which index linking is at that point in time, accurate. In cases where the Declared Value is not regularly reviewed in line with policy requirements, there is a distinct risk the Declared Value will over time become significantly inaccurate. You should always confirm with your broker that this is the case if you are unsure.
The Cost of Inaccurate Valuations
If the reinstatement cost is overestimated, the premiums for your policy will be unnecessarily high. You’ll be effectively “over-insured” and paying for more coverage than you need.
Many people assume that if the cost of repairing their property falls below the sum insured, then the full amount needed will be automatically paid out by their insurer. This is not the case. Pay-outs are based on the level of cover being sufficient to reinstate the whole property.
If the reinstatement costs are underestimated, savings may be achieved in the short-term, but if the worst happens and the building is damaged, you, your fellow leaseholders and the landlord will be left underinsured.
This can obviously be catastrophic, with leaseholders left homeless, legal battles to fight and huge financial burdens placed on all parties.
Reinstatement Cost Assessments
Due to the severity of the issues caused by under or over insurance, it’s essential that a professional valuation is carried out. Most insurers want a valuation every 5 years or after any significant upgrades or changes.
You’ll need to work with a Chartered Valuation Surveyor who will consider any improvements made to the property since the last valuation as well as the current costs involved in reinstatement.
Once you have your updated valuation report, send it over to your broker who can make sure your policy is still accurate and meets the current needs pf your block.
Block in a Box are partnered with Barrett Corp Harrington who will be more than happy to discuss your needs. They work nationwide and at discounted rates for Rebuilding Cost Assessments:
“For a relatively modest fee, peace of mind can be obtained. In the unlikely event that disaster strikes, you can focus your efforts on rebuilding, not trying to raise funds to finance an underinsurance shortfall.” BCH
In Summary
Accurate valuation of the rebuild cost for your block of flats is crucial to avoid the risks associated with under or over insurance. The “Buildings Sum Insured” is the rebuild value, not the current market value, and inaccurate valuations can lead to high premiums (over insurance) or insufficient coverage (underinsurance).
Underinsurance can have severe consequences, incurring potentially huge out of pocket expenses and legal issues. To prevent this, a professional valuation by a Chartered Valuation Surveyor is recommended every 3 years or after significant property changes.
If you have any questions or would like to enquire about a valuation from Barrett Corp Harrington, please feel free to call or drop us an email. We’re always happy to help.
