17 property insurance loopholes you need to know about today
This is a common loophole. Under insuring will drastically affect the claim settlement. Here is an example: If you own a building that would cost $500,000 to rebuild, and you insure it for a rebuild price of $250,000, then you are underinsured by 50%. This will have no bearing on your policy until you have to make a claim.
Let’s say you have a burst pipe and water runs down the walls from the bathroom upstairs into the kitchen below. If the cost is $5000 to repair the damage, the insurance company will use the ‘average condition’ hidden away inside your 100-page policy wording, to reduce your claim by 50% and pay you $2,500. This is because you don’t have adequate insurance and are underinsured by 50%. If the building were to burn down, the same loophole applies.
2. You don’t have extended full accidental damage
Many insurers state that Accidental Damage is included as standard. Read the ‘perils’ section of your policy wording, which is normally at the beginning. This explains what you are covered for. You will often find that Accidental Damage only covers Accidental Damage, relating to fixing the glass and sanitary fittings of a building. If you are located in Texas, for example, you will need to check the policy of your insurance company supplies, as it may be Texan or National.
3. Your flat roof is more than 20%
A lot of insurers will apply terms or increase premiums to account for the extra risk if a flat roof covers a certain percentage of the total roof area. You must get this right, as plenty of insurers will not even quote if it is over a certain amount. This article, 5 Home Gotchas That Are Tough To insure, describes the issue of the flat roof as follows:
“While aesthetically beautiful, flat roofs make some insurance companies run the other way due to leaks and interior damage from the leaks.”
So when an insurer asks you for the size of your flat roof, make sure you do not guess it, but instead that you check the official size. A simple mistake of saying it is smaller than it is, may invalidate your insurance with an insurer that only covers buildings up to an amount less than you have stated.
4. Not declaring any commercial interest
If you insure your building under a Home Insurance Policy, it is important to declare any commercial interest you may have. Even those that have an online business consider they do not need to, but the reverse is true.
Insurers have their own underwriting criteria and some simply don’t cover working from home. In the event of a claim, where working from home comes to light, may, provide a large loophole for an insurer to otherwise avoid paying a perfectly valid claim from every other perspective. In fact, the Washington Post covered this issue.
5. Not activating your alarm (if you have one)
This is a common problem with building owners – whether it’s commercial or private home insurance. Not having an alarm normally means you might pay a little extra. However, owning an alarm can reduce your premium also.
Somewhere hidden in the small print is an alarm condition, which insists the alarm is activated when you are not on site. Failure to activate your alarm means you may well find the insurance company could avoid paying any potential theft or malicious damage claims to your building.
For savvy homeowners, this article about security devices is a good read.
6. What fire cover do you have?
The vast majority of policies will have a Fire clause. Read over the terms of cover very carefully, however, as there are plenty of policies that will exclude arson!
7. Not declaring the correct number of bedrooms
It is common for insurers to rate your house on the number of bedrooms to determine what premium you pay. Many proposers know this and declare fewer rooms than there are. The number of bedrooms you have is pretty straightforward.
Let’s say you have six bedrooms, but you think that little box room is a poor excuse for a bedroom and you declare five instead. Some underwriters will exclude anything over five bedrooms under their own criteria, leaving a loophole for use in the event of any claim. They will state that had there been the correct information given in the first place, they would not have taken on the risk. Another useful resource, especially if this is a new area for you, is this guide.
8. Your building becoming unoccupied longer-term
If you have to leave your home or your tenant leaves your building, make sure you tell the insurer. Some insurers will allow thirty days unoccupancy cover, some will offer even longer periods. However, some will request cover is placed elsewhere, if a property is empty for a certain amount of time.
If you are unlucky enough to have an empty building through an insurer who wants the cover to be placed elsewhere, and the building has been empty past this limit and suffers fire damage – this provides a large loophole for insurers to avoid the claim in its entirety.
9. Lock picking
Most insurance companies will require forcible and violent entry for there to be a valid theft claim. However, it has been known that theft claims can be declined if the lock has been picked.
10. Not updating the insurer at renewal
This is a common error. The proposal form is completed in year one to the best of your knowledge. Then the renewal invite is sent which contains the same information you first declared. However, it is your responsibility to check that everything is still correct and inform the insurer if it is not. If you have a conviction or have even been director of a company that has gone into liquidation and you fail to inform the insurer, then you run the risk of this being exploited by the insurer with any future claims.
11. Not reporting a claim within a reasonable time
Always read the Claims Condition on your Policy Wording. Often insurers will specify that claims must be reported within twenty-one days of the incident or of you becoming aware. A late claims notification should not invalidate a claim (unless it has gone on ridiculously long), but it will give scope to the insurance company to reduce their costs and give them a chance to argue certain costs will not be met as the building condition has deteriorated due to the lack of your action.
12. Loss of rent
It is important to understand the meaning of this. More often than not, Landlords of ‘Buy to Let’ properties believe this to be a protection for their rental income. For example, if the tenant fails to pay, then the monthly rental income will be paid out. What it means is that your rent is insured, but only in the event of an insured peril (such as a fire) and your property becomes uninhabitable. Often insurers sell this cover without a proper explanation, and the title of the cover itself may be slightly ambiguous. If you want your rental income protected, opt for Rent Protection Insurance’.
13. Block of flats with basement
Many flats have basements. Some insurers will, however, exclude flood cover if this is the case. Failure to notify them can result in flood damage not being covered in the event of a claim.
14. Ambiguous questioning by insurers at the proposal stage
Insurers will often ask if the property has been in an ‘area’ that has been flooded. Naturally, this means different things to different people. Don’t just simply say ‘no’ when asked if the property has been in the area of the previous flooding – make sure the insurance advisor defines what an area is first!
It can actually mean a mile radius. Often the person asking the question will not even know what an area is defined as. The last thing you need is a flood, and the insurer finding this loophole to avoid paying a claim if your property is closer to a flooded area that you thought.
15. Make sure the correct name is on the buildings policy
Sometimes people insure their buildings in someone else’s name. When it comes to making a claim however, the owner can forget this giving the insurer the chance to argue that there is no contract in place with the claimant. Also, be sure to read over our advice regarding Building Sums.
16. Package policies with buildings under the wrong name/entity
If you are a shop owner and own the building too, it is important to get the detail right. Often the building is named under a private individual who in turn rents that property to the business, which is often a limited company under which the private individual is the sole Director. Although we can all see it’s the same person owning the business and building, in the eyes of the law it is not. Two distinct entities have been created and they should be insured separately.
17. Refer to your proposal form when claiming
You may not remember exactly what you said on your Proposal Form when taking out insurance, or circumstances may have changed. When making a claim, especially when there is a Loss Adjuster appointed, the answers you give to the Claims Questionnaire will be compared to your Proposal Form.
If the Statements do not match up, the insurer may delay payment or worse. Therefore refer to your Statement of Fact or Proposal Form when you need to make a claim. Claiming can be stressful and sometimes feel like an interrogation when you are under pressure so refer to your answers to make sure you re-familiarize yourself before any meeting with a Loss Adjuster.
About Robert Fisher
Robert Fisher is a company director of the Property Insurance Centre, who specializes in Business and Property Insurance, serving clients throughout the United Kingdom. His expertise and career in insurance spans almost twenty years.
Robert’s background is in Building Surveying, which he studied at Heriot-Watt University, where he was awarded a BSc (Hons) degree. Much of his educational background is in Building Structural Safety from an engineering perspective.
The knowledge that Robert gained at undergraduate level has lent itself well, particularly as it has enabled him to evaluate the risks associated with certain buildings. This means he knows how best to place these risks and ultimately insure the properties against such risks. His in-depth knowledge of various methods of construction has enabled him to easily identify which insurer’s underwriting criteria would best fit each client’s needs and provide the correct levels of cover.
Additionally, Robert is responsible for training the team and ensuring that they are always kept up to date with the latest industry developments. This is an area that he is naturally drawn to because of his inquisitive mind, diligence, and passion for passing on knowledge to others.
He is a member of the Chartered Insurance Institute (CII) and Qualified to Level 3 with the CII. As part of the Level 3 certification, Robert has undertaken modules in Insurance, Legal & Regulatory (IF1), Insurance Claims Handling (IF4) and Insurance Household Products (IF6). As a condition of CII Membership, Robert continues his Professional Development by keeping abreast of the latest industry developments.