Landlord Insurance - Buildings Cover Amount?

Tammer

Hi
I am dealing with my mum's affairs. She has a 4 bedroom top floor tenement flat that she rents out to a family and this has been in place for >5 years.

Her Home Insurance is building cover only with Sainsbury's. I notice the Buildings Insurance is "unlimited sum assured" which I would have thought is unusual?

How should I assess what the sum assured for buildings cover should be? I think she will be paying a lot for the unlimited and it may be unnecessary.

Many thanks in advance.

Aretnap

It's not particularly unusual, not is it necessarily very expensive.

Basically there are two approaches an insurer can take to the rebuild cost of a home

(1) Ask the customer to provide a rebuild value, which is the maximum the insurer will pay out for a total loss claim (ie the property burning to the ground and having to be rebuilt from scratch). The customer uses an online tool to estimate the rebuild cost at say £150K, and the insurer factors a maximum payout of £150K into its underwriting. But God help the customer if the house burns to the ground and the actual cost of rebuilding it turns out to be £160K...

(2) The insurer makes its own estimate of the rebuild cost based on the type of property, it's size, construction materials etc and bases is underwriting on that. Meanwhile it puts a blanket maximum level of cover in its policy terms which is enough to rebuild any property which is not a grade 1 listed mansion, or just leaves the cover as 'unlimited'

Arguably (2) is fairer. The insurance company has a better idea of what it costs to rebuild a 4 bedroom flat than the average consumer does, and it means that the risk that the estimate turns out to be wrong falls on the insurer, not the customer.

You might expect policies of type 2 to be more expensive, but the difference is often very small. The insurer isn't actually covering the risk of an unlimited payout, because it doesn't cost an infinite amount of money to rebuild a 4 bedroom tenement. All they're covering is the risk that the final rebuild cost might turn out to be a bit more than their original estimate, in the unlikely event that the flat burns to the ground. My own home insurance policy comes with an unlimited rebuild cost, and costs about £20 more than a cheapo one with a much lower limit. And that £20 buys a lot of premium features, not just the higher claim limit.

So by all means do a bit of shopping around for your mum and see if you can get a better deal, but don't assume that she must have a bad deal because of a high/unlimited sum assured and certainly don't risk being underinsured for the sake of a few quid off the premium.

jonesMUFCforever

Can I ask is this leasehold property?
Does she own the lease ? If not it is the lease owner who should insure the property - charging your mother a proportion of the insurance premium.

FlameCloud

jonesMUFCforever wrote: »

Can I ask is this leasehold property?
Does she own the lease ? If not it is the lease owner who should insure the property - charging your mother a proportion of the insurance premium.

Tenement flat most likely equals Scotland and they are usually responsible fro individual policies covering their own areas.

Aretnap

FlameCloud wrote: »

Tenement flat most likely equals Scotland and they are usually responsible fro individual policies covering their own areas.

In which case correct me if I'm wrong, but isn't that another arguament fur making sure that your sum assured is significantly greater than your own theoretical share of the rebuild cost? Because, if your neighbour doesn't insure his flat for whatever reason and the whole building burns to the ground, a policy that only covers the cost of rebuilding the top floor isn't going to be much use...

paddyandstumpy

Aretnap wrote: »

In which case correct me if I'm wrong, but isn't that another arguament fur making sure that your sum assured is significantly greater than your own theoretical share of the rebuild cost? Because, if your neighbour doesn't insure his flat for whatever reason and the whole building burns to the ground, a policy that only covers the cost of rebuilding the top floor isn't going to be much use...

If a hypothetical downstairs neighbour didn't insure their share, or have provisions to pay, I suspect the insurer would cash settle their insureds liability. They'd have no obligation to build the downstairs flat just to then reinstate their policyholders flat on top.

Owain_Moneysaver

FlameCloud wrote: »

Tenement flat most likely equals Scotland and they are usually responsible fro individual policies covering their own areas.

The law now requires all flats in a tenement to have buildings insurance.

It doesn't mean that they all do, of course.

More seriously - is the OP's mum's house insured under a normal home insurance policy, as a specific landlord's policy is required for rented property.

Aretnap

paddyandstumpy wrote: »

If a hypothetical downstairs neighbour didn't insure their share, or have provisions to pay, I suspect the insurer would cash settle their insureds liability. They'd have no obligation to build the downstairs flat just to then reinstate their policyholders flat on top.

That makes sense - but would cash settlement mean paying the market value of the flat rather than paying the (share of) the rebuild cost? If so the sum assured would presumably have to take into account the fact that the market value is usually higher than the rebuild cost. (In fact depending on local house prices you can imagine circumstances what it might actually be cheaper for an insurer to rebuild the whole buildingthan pay out the value of one flat)

paddyandstumpy

Aretnap wrote: »

That makes sense - but would cash settlement mean paying the market value of the flat rather than paying the (share of) the rebuild cost? If so the sum assured would presumably have to take into account the fact that the market value is usually higher than the rebuild cost. (In fact depending on local house prices you can imagine circumstances what it might actually be cheaper for an insurer to rebuild the whole buildingthan pay out the value of one flat)

I'd imagine the insurers liability ends with the rebuild value, not market value.

Aretnap

paddyandstumpy wrote: »

I'd imagine the insurers liability ends with the rebuild value, not market value.

If so that would be rather unfortunate fur the customer, who neither gets their home rebuilt not gets anywhere near enough money to buy a replacement home. If hour that there's some way of making provision for that scenario.