The Bricks & Mortar of “buildings” Insurance

A4Buildings are often the most valuable asset that we will own. Insuring your buildings correctly is crucial to protecting your investment.

Here are some tips to ensure that your policy will respond when a claim happens.

1. Disclose the type of construction to your Insurer

Non-standard construction such as wood or thatch pose a higher fire risk and is material information that the Insurer must be aware of. Thatched lapas should also be disclosed particularly if they are adjoining or in close proximity to the main building.

2. Insure for the correct value

You want to avoid being hit with “average” at the time of a claim. Under-insurance will result in claims being proportionately reduced.  Clients often make the mistake of assuming that the fair market value of the property is the correct value to insure the building for. This is incorrect. Firstly, the land upon which the building is situated is not insured.  Secondly the insurance is based on the cost of re-building the building not its market value. Thirdly, there are other factors that must be taken into account when determining the sum insured. Items such as boundary walls, gates, paving are all to be included. Then you need to cater for the cost of demolishing the damaged building, cost of clearing the site and architect’s and other professional fees, all of which can add up to a significant amount.  FPM has tools at our disposal to assist you with establishing the correct sum insured.

3. Keep your building well-maintained

Lack of maintenance on a building provides the Insurer with grounds to reject claims. There is a duty on you as the policyholder to take all reasonable steps to prevent or minimise losses. Inadequate maintenance on roofs and on waterproofing will result in an increased likelihood of water damage resulting from storms. The policy will not pay for remedial work as a result of a lack of maintenance.  Poorly maintained buildings become uninsurable.

4. Comply with Insurance Survey requirements

Insurers may from time to time conduct a Risk Survey of the building (more common for commercial buildings). The Insurer may call for specific risk improvement measures or remedial work to be done such as additional fire-fighting equipment to be installed. Timeframes are provided for the policyholder to comply. Failure to comply could result in claim rejection.

5. Inform your broker or Insurer if the building becomes unoccupied

Should your building be unoccupied for a period longer than 30 days, you must inform your Insurance Company as this is seen as a material alteration in the risk that could prejudice your cover in the event of a claim.

6. Pay your premiums on time

The general rule is that if you bounce 2 consecutive debit orders, your policy may be automatically cancelled. Annual premiums should be paid within 30 days of the renewal date.

Did you know you do not have to accept the bondholder’s insurance?

The Financial Institution that holds the mortgage bond over your property will often arrange the insurance for you. While the cover they provide is often as good as the market can provide, their premiums may not necessarily be competitive. They also tend to debit your bond account with an annual premium every year with the result that you pay interest on the insurance premium in addition to the interest on the bond itself. This increases the cost of the insurance significantly. It is preferable to have the building and the contents insured with the same insurance company as claims often affect both the building and the contents and it can get complicated when two different insurers or brokers are involved.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)

2Rodney Caruana
Managing Director
FPM Short Term Insurance Brokers