Reinstatement Cost Assessments: Getting your Sum Insured right is important. If disaster strikes, are you insured for the right amount?
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Natural disasters and major fires seem to be in the headlines every month but when these spectacular events occur, it focuses our attention on the adequacy of our insurance cover. If this happens to you your first question is likely to be ‘is the loss covered’ but the next is always ‘are we covered for enough to rebuild the property completely’?
In the event of a large incident like a flood or fire, what would happen if the cost of repairs were to exceed the building sum insured?
Insurance reinstatement values rarely match to market values. It is important that all elements that make up ‘buildings’, as defined in the policy, are allowed for and included in the valuation. These include dwellings, garages, common parts and lifts. The insurance policy may also allow for external items such as car parks, hedges, walls and fences. Allowance also needs to be included for increases in cost related to compliance with current building legislation. In addition, policies should be index linked to protect against inflation. All of this responsibility sits with the Residents’ Management Company, so how can you fulfil your obligations?
In the event of a complete loss and the sum insured is found to be exhausted by the loss, the residents may then turn their attention to the Residents’ Management Company and its directors. It is after all, that they represent the residents and which is ultimately responsible for the insurance policy and cover provided by the same. It is therefore good practice to obtain professional advice on sums insured for insurance purposes at least every 5 years.