AND FOULUPS I'm sure that all property owners are well aware of the wisdom of insuring your property and it is of course usually a requirement if we have a mortgage on the property, whether it is residential or commercial. The issue is how much to insure one's property for and this is where many people are left in the dark.
When I was young, I remember having this discussion with my father (who believed he was the fount of all knowledge on any given subject) he told me how our family house in London was insured for around £10,000 when it’s market value was around £30,000 (I did say this was when I was a boy!) I queried this with him, and he told me then that it is “once for cost of rebuilding, once for land and once for profit – that is how houses should be insured”.
I should point out that he never worked in property in his career. Now, I have talked about this more recently, and various other people have explained to me that this still stands true or alternatively that a property should be insured for one and a half times its market value since we have to allow for demolition of the existing building. I have to tell you that both of these are totally erroneous and both likely to cause problems in the future. The principle of property insurance is to replace what was there before and so if the property is damaged then we need to recover the cost of rebuilding it to the extent that the damage has caused.
This applies to all classes of property, but I thought the easiest way to explain this to people is to look at housing – because it is something that almost every reader of this magazine will have an interest in. Here’s a Tyneside flat – which most of the readers will recognise! Its in Benwell and it sold in January last year for £39,950. What would you insure it for? £13,330 (my father’s formula)? £60,000 (the alternative view)? And another Tyneside flat – this time in Jesmond. This one sold in May 2020 for £170,000 – so should it be insured for £56,700 or £255,000? The truth is as in the old adage – and current day television programme – its all about “Location, Location, Location”. I think in reality people are well aware of that. Rebuilding costs and therefore sums insured bear little resemblance to market value. According to the BCIS these flats should each be insured for around £170,000. However here at BIV BOWES we are launching our new service, primarily aimed at commercial property owners (although possibly of interest to homeowners too) where we will provide a more bespoke figure to take into account individual circumstances. For example in two apparently identical homes even next door to each other, one may have a “B&Q” kitchen costing say £3,000 to replace and one may have a “Poggenpohl” kitchen costing £30,000 to replace. The same principle applies to commercial properties and because we will (unlike some others) make a proper inspection of each property we can give a better standard of report. Another mistake many people make is to say that it is rare for a property to be completely “taken out” by an insurable incident. This much is true, but an insurance company that believes the whole sum insured is half what it should be might only offer £1,500 for the B&Q kitchen above or £15,000 for the Poggenpohl one. A sobering thought.
In reality, it can all be summed up in four words: “Ensure you insure….correctly!”
