Is Your Holiday Home Let Under-Insured?

When a popular Dorset pub was devastated several years ago, thanks to a huge chimney fire, the owners were left with a burnt out property and a big bill thanks to underinsurance. 

huge crowd funding appeal resulted in the pub being rebuilt, but many businesses are not so fortunate; this is particularly true when looking at the holiday lettings business. The estimated total of underinsurance across all British commercial buildings is £375 billion.

Last year British Property Federation data revealed a growing proportion of commercial properties are underinsured and the gap between property rebuild costs and the amount properties are currently insured for in the UK is widening as building and materials costs continue to rise.

"Underinsurance is when a policyholder has inadequate insurance cover for their needs. In the event of a claim this could mean a claim amount exceeding the maximum limit that can be settled by the insurance company. This could result in a shortfall for the policyholder, potentially leading to a serious financial loss for the holiday lettings business owner" says David Upshall, of Dorset-based David Upshall Insurance Services.

There are a number of reasons a policyholder may be underinsured. In many cases, it happens when valuations are out of date, roughly estimated, or incorrectly calculated. It can also be caused by insufficient limits in the policy.

While underinsurance may be due to an oversight by a policyholder, it may also reflect action taken by the policyholder to reduce their premium by not declaring their sums insured accurately. Doing this not only increases the risk of financial loss, it can also void insurance cover altogether.

There is also the misunderstanding around the subject to average clause, included in most insurance policies. For example  if you are insured for £200,000 and when making a claim your property rebuild sum insured is deemed to be £400,000 you are 50% underinsured. Therefore if the claim you are making is for £100,000 you will most probably receive around £50,000.

Upshall explains why taking out proper holiday lettings insurance is so vital in today's climate; "It may come as a surprise, but holiday homeowners and landlords could unknowingly leave themselves and their property vulnerable to risk by not having correct and suitable holiday let insurance.

"One of the main reasons that a holiday let or rental requires specialised cover is because it is far more likely to be left unoccupied for periods of time. This increases the risk of unfortunate events, such as theft and damage to the property.

‘Renting a holiday home commercially also means an increased risk of injury to visiting guests. While additional facilities like log burners, swimming pools and hot tubs may be great features for visitors, it also increases the possibility of injuries being sustained and even serious fires or floods occurring and causing immense damage to the property."

Upshall continues: "Renting a holiday home commercially also means an increased risk of injury to visiting guests. While additional facilities like log burners, swimming pools and hot tubs may be great features for visitors, it also increases the possibility of injuries being sustained and even serious fires or floods occurring and causing immense damage to the property.

"Clients ask me: what is the difference between the service we offer and some of the large direct brokers and insurers? The answer is that all our holiday home policies are arranged by our experienced team on an advised basis. It is most important to be advised when arranging insurance for your property or business, as clients quite often are not aware of all the covers they need to protect their property.

"To enable our team to assess the requirements of our clients it is imperative that they understand our client's needs, and then due to years of experience they know the insurers to approach, that best match their needs.

"It is so important to gain enough information to advise on covers that may be needed. In addition to the basic material damage cover, we would need to advise on such covers as employers' liability, public liability, directors and officers and legal expenses. It is also most important to ensure that the client understands under insurance.

"Under insurance is one of the biggest causes of claims not being paid in full.”

* This article was prepared by David Upshall Insurance Services *

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