Underinsurance and Buy-To-Let Properties

What is underinsurance?

Underinsurance is when a building doesn’t have enough insurance to cover the total rebuild cost of the property. According to RebuildCostASSESSMENT.com, approximately 76% of UK properties are underinsured. This means that, in the event of a claim, insurers would not pay out the full amount required - they would apply the average clause and only pay a percentage of the total amount, leaving you out of pocket.

How does underinsurance happen to landlords?

Underinsurance can happen in a variety of ways, the most common being that the building is insured for its market value rather than its rebuild value. You may also fail to take loss of rent into account by underestimating the time it will take to get the property back into a habitable or workable condition. Also, if a tenant causes damage to your property, you would not be able to claim unless you had taken out specialist buy to let insurance.

HMOS (houses in multiple occupation), listed buildings, and other specialist properties can also face unique risks which can lead to underinsurance. You may need to do renovations to get the property in working order, but if you don’t update your policy before doing so, you will be underinsured.

How to avoid underinsurance

Keeping your policy updated is crucial to avoid underinsurance - prices of materials and labour will rise due to inflation, so the total rebuild cost will increase each year.

It’s also important to make sure that you’re on the right policy for your property - you may have purchased your property as a home for yourself but are now letting it out. This means that you will need landlord insurance rather than home insurance. When it comes to specialist properties such as HMOs or listed buildings, you will need specialist buy-to-let insurance that will offer you complete cover.

Finally, you’ll want to have your property professionally valued so you can be confident that you have the right rebuild cost for your policy.

Landlords insurance from Towergate

At Towergate, we can cover a wide range of rental properties and types of tenants, including multi occupancy, students, and local authority placements. Our policies can include cover for loss of rent, loss of keys, accidental damage, alternative accommodation costs, and more.

You can compare prices from a range of leading insurers, as well as add-ons such as landlord home emergency insurance.

Take a look at our landlords’ insurance page for more information.

Sources 

1. https://www.totallandlordinsurance.co.uk/knowledge-centre/how-to-avoid-underinsurance
2. https://www.nrla.org.uk/news/understanding-the-risks-of-underinsurance-for-landlords
3. https://honeycombinsurance.com/insurance-learning-center/is-my-property-underinsured

About the author

Alison Wild BCom (Hons), FMAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a Fellow member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.

Consistent with our policy when giving comments and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems, we recommend that professional advice be sought.