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MINI MONTHLY MAGAZINE
ISSUE SIX... ABOUT VALUATIONS Want an electronic copy? email: firstname.lastname@example.org
MINI MONTHLY MAGAZINE Residentsline
in association with
Flats Insurance We are pleased to introduce the sixth edition of our Mini Monthly Magazine.
We have taken Flat Living's monthly feature and have prepared it as a hard copy for you to circulate to your team. This month's issue is all about Valuations. For further copies please email us at email@example.com.
How we make sure we insure our flats for the Correct Value
What is a Reinstatement Cost Assessment?
What is the difference between Sum Insured and Declared Value
To VAT or not to VAT?
To read a full copy of the latest Flat Living Magazine please visit www.flat-living.co.uk.
ABOUT RESIDENTSLINE At Residentsline, we always aim to deliver the best for our clients. Our leading policies include cover for Directors and Officers, Buildings, Lift Inspection, Legal Expenses and Terrorism, ensuring comprehensive cover at the most competitive prices. Our additional services include our Cloud-based portals: Manage Your Block and Property Management Portal, both of which allow clients to store and update important insurance information, as well as liaise with tenants and contractors.
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This month's edition of our Mini Magazine will be discussing valuations: how we make sure we have the correct value, the differences between sum insured and declared value and VAT. We hope you find it useful, and please feel free to contact us with any questions â€“ we're always happy to help. Visit www.residentsline.co.uk to get a Quote.
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How do we make sure we insure our flats for the correct value?
The quality of your insurance cover is paramount, but the next most important matter is the accuracy of the buildings sum insured, said Belinda Thorpe, MD of Residentsline. As a policyholder you are responsible for ensuring that the buildings are insured for the right amount. Your insurer is unlikely to look at this on your behalf, as establishing a correct Sum Insured requires specialist knowledge. If the Buildings Sum Insured is too high, then you are paying too much for your insurance. If the Buildings Sum Insured is too low then not only do you run the risk of not being able to rebuild your property in the event of a total loss, you also have the problem of payments for smaller claims being reduced.
In the event of underinsurance, the insurers will normally apply their 'Average Clause'. This is a policy condition that allows the insurer to proportionately reduce the amount that they pay you, if you have not insured the property for the full reinstatement value. The cost of rebuilding a property to the same specification is constantly changing and this cost is normally an upward movement. To help alleviate this issue, most insurance policies automatically increase the Buildings Sum Insured each year by a given percentage, known as index-linking. Whilst this helps, it doesn't eliminate the problem of over or underinsurance if the initial Sum Insured was incorrect.
The index that the insurer uses, does not take into account any specific construction issues of your property let alone local inflationary factors, so the adequacy of the Sum Insured may erode. Therefore there is no substitute for a professional buildings valuation. Such valuation should be carried out on a regular basis and whilst the frequency of valuation will vary depending on the type and size of property, we would recommend that a valuation is carried out at least once every five years. Obviously, any changes to the building in this period such as extensions and improvements need to continue to be notified to the insurers and the Sum Insured increased to reflect such additions.
Therefore there is no substitute for a professional buildings valuation. Such valuation should be carried out on a regular basis. we would recommend that a valuation is carried out at least once every five years.
It is also worthwhile confirming with your insurer that a professional valuation has been commissioned as it may be possible to agree with them that the Average Clause can be deleted. If the valuation is found to be too low the insurers will not proportionately reduce any small claim. However, in the event of a total loss, the insurers will still only pay a maximum of the Sum Insured. For more information, please contact Residentsline 0800 281 235.
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What is a Reinstatement Cost Assessment? A Reinstatement Cost Assessment (RCA) is a careful, professional assessment of what it would cost to rebuild a property if it were destroyed by fire, flood or other perils for which insurance is available. The cost of rebuilding a property is very different from that building's market value. Determining the rebuilding cost accurately in advance requires extensive technical and professional knowledge about buildings and how they are constructed. For this reason, RCAs should always be conducted by a Chartered Building Surveyor, and not simply based on the value of the building or using pro forma templates.
An RCA provides essential information for property owners and occupiers, as it will determine the amount for which the property is insured. If the figure is too high, the insurance premiums will be unnecessarily high. If it is too low, the property owner may have to make up the difference between the amount insured for and the actual cost of rebuilding. In fact, insurers can reject claims altogether if the amount insured for falls significantly short of the actual cost. An accurate Reinstatement Cost Assessment is also important for insurance claims for repairs. Most insurance policies specify that in the case of undervaluation by more than ten percent, any pay-out
for repairs will be in the same proportion as the proportion of the amount insured for to the actual cost of rebuilding. For example, if the property has been insured for only half that figure, then the insurer will pay out only half the amount needed for repairs. The Association of British Insurers claim that 20% of householders are underinsured and one study has put the figure at as high as 80%. Clearly, then, an accurate RCA is essential if an insurance policy is to provide genuine peace of mind and protect a property owner from devastating unexpected costs. Every building is unique, so a good RCA will take into account the peculiarities of the property in question. The location, construction type and quality all must be considered, along with any distinctive architectural features. Crucially, assessments must be based on careful analysis of each element, rather than using simple indicative tables, which can often result in misleading assessments. Period buildings and conversions are especially vulnerable to undervaluation, and we have particular experience of working with Listed Buildings. Older buildings tend to have higher ceilings, while warehouse conversions, for example, tend to have thicker external walls.
Buildings with original fireplaces and chimney stacks are also more expensive to rebuild. Moreover, insurance valuations based on modern materials will be inadequate where distinctive older materials have been used. And if a property is Listed, negotiations will be required with the local planning authority to establish the standard of restoration, and this may involve additional professional fees. A good surveyor will consider all of these factors to ensure a property's RCA is as accurate as possible. This should also be reviewed regularly to ensure it is still accurate, taking into account the changing costs of materials and other developments in the building trade. Best practice recommends that a full reassessment is undertaken every three years. With an accurate and up-to-date RCA in place, you can look forward with confidence that, should the worst happen, you are fully covered. EKA's Insurance Services Team deal with Reinstatement Cost Assessments - a careful assessment of what it would cost to rebuild a property if it were destroyed by fire, flood or other perils for which insurance is available - and in overseeing claims in the event of damage or destruction, as well as managing reinstatement works. Contact EKA's Insurance Services Team on 020 3667 1510.
What is the difference between Sum Insured and Declared Value? Your Policy schedule will often show two values: The Declared Value and the Sum Insured. The difference between these two figures is simply how the insurance contract handles inflation during the insured period. The Declared Value is the cost to rebuild your property in full, however you do not need to add any increase for inflation during the insured period or during the time it takes to rebuild the property following a claim. A Day One Clause provides insurance against the effects of inflation during the period of insurance for a given percentage uplift figure. The percentage uplift will vary from insurer to insurer but will typically be between 10% and 50%. The insurers still require a rebuilding figure to be given to them, and in return they will confirm what the total Sum Insured equates to inclusive of this Day One protection.
For example, a property with a rebuild figure of ÂŁ500,000 which represents the Declared Value, will have a Sum Insured of ÂŁ600,000 if the insurance policy contains a 20% Day One Uplift Clause. The Declared Value figure and the Sum Insured figure are often confused. If the Declared Value is incorrect then problems may still arise with underinsurance as the Day One Uplift is only meant to protect against inflationary problems and not valuation inaccuracies. The Average Clause will still apply. When arranging buildings insurance quotations on a Day One basis the insurers will need to know the Declared Value and not the Sum Insured. At the time of a complete loss the insurers will then pay the maximum of the Declared Value, plus the amount by which inflation has increased the Declared Value stated at the start of the policy period the added allowance protecting you from inflation, without you paying more premium. For more information, please contact Residentsline on 0800 281 235.
To VAT or Not To VAT?
All Residents' Management Companies need to ensure that the requirements set out in their Lease are covered by their blocks insurance policy and are reviewed at each renewal of cover. It is also recommended by the RICS Management Code that properties should have a valuation completed and reviewed by an appropriately qualified Surveyor on a regular basis. When arranging an insurance policy your insurer/broker requires a Rebuilding Cost, often referred to as Declared Value, which is the basis of your premium calculation. The Insurer will include a further percentage to allow for inflation, during the insured period or during the me it takes to rebuild the property following a claim, of normally between 10 and 50%.
However, should we add VAT to our Declared Value or NOT? Facts • If your block is demolished to ground level and has to be rebuilt, these costs do not attract VAT. • If your block is 90% destroyed and Insurers decided to rebuild your block rather than knock it down and rebuild it totally – these costs would attract VAT at 20%. Example The Declared Value of the block is £1,000,000. If the block where 90% damaged and the Insurer decides to rebuild, the costs that could equate from this loss are £900,000 + 20% VAT = £1,080,000
In this instance the Insurer would only pay £1,000,000 and there would be £80,000 needing to be found to complete the rebuild. So, should you include VAT or NOT? Some people believe it would be unlikely that Insurers would choose to rebuild where a property was 90% damaged, however, this is quite a risk to take! In a recent First Tier Tribunal (FTT), it was agreed that the question of whether VAT should or shouldn't be added to the Declared Value provided to Insurers would be dependent on your Insurers stance and how their policy is written. Having reviewed several products, we found that some Insurers expect VAT to be included, others don't, and some Insurers are completely silent. Unfortunately, this opens a minefield. Unless your Insurance Policy states how your Insurer reacts to this situation, I recommend that you should contact them to obtain their advice…always better to be safe than sorry! (In the FTT case mentioned above, they held that it was reasonable to include VAT in the sum insured). For more information, please contact Residentsline on 0800 281 235
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