Cover Lite vs Full Cover

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We have searched the insurance market and come up with a new product called cover lite. We have often been asked by landlords whether we could provide a cheaper product.

This cover lite policy allows you to be able to do this at a reduced cost.

Yet, it is always important for people to understand that reducing cover might save you in the short term but would it save you in the long term.

We look at what will be excluded from policies in order to reduce the premium. We have found that some of the large insurance companies provide a much more reduced cost for clients but are they covering what they actually need? We appreciate that everybody’s budget is different but it is important that you are aware of what wouldn’t be included.

What items are normally excluded to reduce an insurance premium i.e. what cover is taken out?

Accidental damage for buildings

What is accidental damage cover?

Accidental damage insurance covers damage caused by unintentional acts, like spilling a drink and staining a carpet, or breaking an ornament. Accidental damage is cover for your possessions as well as the building. Accidental damage can cover a variety of items such as broken glass, windows and other fixed external glass.

Accidental damage to toilets, sinks and other bathroom fittings, damaged drains, pipes, cables, and tanks connected to your home.

Damaged kitchen units, including accidental to built in ones.

Any unintentional hole in the wall

Flood, fire, storm and other water damage.

What will it not include?

It will normally exclude the following:-

The cost of maintenance or normal redecoration.

Loss or damage from:-

Settlement, shrinkage or expansion

Insects, vermin, domestic pets

Scratching or denting

Damp, fungus, wet or dry rot, mildew

Atmospheric or climatic conditions, frost, the effect of light

Rust, corrosion, wear, tear or depreciation, or other gradually operating cause

Loss or damage caused by a person you employed to carry out maintenance or repair work and anything else in this regard.

Subsequent or consequential loss of damage where the initial cause of the loss or damage is not covered.

Loss or damage where a part of the property is empty or occupied.

Underground services could be covered. Normally accidental damage to underground services supplying the buildings for which the insured is responsible including the cost of breaking into and repairing the part between the main sewer and the building following a blocked pipe.

However the following would not be covered

Loss or damage which you are not legally responsible to repair:-

Loss or damage caused:-

  1. a) By rust corrosion or other wear, tear or deterioration
  2. b) Whilst clearing or attempting to clear a blockage
  3. c) Damage due to a fault or limit of design, manufacture, construction, or installation or by gradual deterioration which has caused an installation to reach the end of its serviceable life.
  4. d) Damage to pipes made from pitch, fibre material
  5. e) Loss of damage whilst the property is empty or unoccupied

Accidental damage for contents if often excluded. This basically relates to an accidental damage to any contents that may be in the property and is pretty similar to the other exclusions.

Reducing property owner’s liability

It is normally standard for property owner’s liability to be up to £5M. Yet by reducing the cover down to £2M this can reduce it. But not all insurers will do this and some it is a fixed amount.

What is property owner’s liability insurance and why do I need such a higher cover?

Property owner’s liability insurance enables you to meet any costs and damages awarded to a member of the public if they suffer an injury following an injury on or linked to your premises.

This protection is usually included within the policy but not always. It could be from any claim arising from the ownership of the property.

The property owner’s liability insurance policy will protect landlords and property owners in respect of claims. As a property owner you have the legal responsibility to ensure that your property is well maintained and does not present unnecessary risk of injury or property damage to either tenants, visitors to the premises or a member of the public outside of the building.

It is totally a matter for you on whether you wish to reduce this type of liability but you must understand that if you do and a claim is made against you for more than the insurance company are covering you would have to pay the difference. It can often be misunderstood by clients and their insurance company whilst they are not covering it i.e. they are giving you £2M but an award has been made of £5M they will pay it out. This is not the case. What the policy says and outlines is exactly what you will be able to get from your insurance company by way of cover.

I have decided to go for a cover lite policy do I need to read what is included?

Absolutely yes, it is so important that you understand that under the Insurance Act you are responsible for all your paperwork and if there is anything that is not included within your policy then it is your responsibility to confirm that you wish to have it added in. It is absolutely critical that you read your paperwork. If for instance, subsidence has been excluded due to the particular area having lots of subsidence claims and you don’t notice and then want to make a claim you will not be able to do so. The Insurance Act makes it clear that it is your responsibility to do this.

When receiving your renewal it is important that you read through all the documentation. You may have excluded accidental damage, malicious damage, or reduced your sum insured but you have to take full responsibility for all of the policy.

Reducing your sum insured can have a huge and critical effect on your policy.

What is an average clause with respect to my building sum insured? What does it mean for my insurance?

You may have an insurance claim reduced by what’s known as an average clause. An average clause is applied when insurance company find that your insurance value sum i.e. sum insured to be incorrect to their own valuation. The value can vary dramatically so it is in your interest to investigate this in the terms of your policy. If you are trying to reduce your premium by reducing your sum insured this could have a huge effect on a claim.

A condition of average is a clause that every insurance policy will have which is there to protect not only your assets but the insurance company and their other customers to. It ensures that you don’t receive a full insurance payment when you have only paid part of the premium.

How does it work?

For instance if a fire damaged a property causing repairs of £100,000.00 and the total declared reinstatement insurance value is £1M most owners would assume that they have adequate cover.

The trouble comes when the insurer can establish that the actual cost to rebuild is £1.2M they can potentially claim that there is inadequate cover in place and reduce the claim via the average clause. The claim will be reduced by the same proportion as the amount of “under” insurance.

These reductions affect the claims pay out and can be as much as 50% which could be devastating on anybody. This typically occurs when the reinstatement insurance assessment for the building is out of date.

Have you had your building assessed for insurance purposes recently?

If not you need to consider this. There are various different products out there and we have our own that can help you to ascertain whether the amount that you have insured your building is correct.

Index linking

Do I really need this?

Absolutely yes, if you reduce your sum insured amount by the index linking every year you will be in a position that your building will be horrifically under insured. You may be able to reduce your premiums every year by saving £10.00 or £15.00 but you could end up losing thousands by doing this. It is important that you find out exactly what your building is worth and it is your responsibility.

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