Dealing with insurance may not be the most exciting event of the year, but it is probably the most important part of owning a property. Repair costs can quickly run into the thousands and spring from nowhere, so it’s important to have adequate protection. Like owning a car, having property insurance is a requirement that, without purchasing outright, you’ll struggle to obtain via a lender or with the support of a trustee. Naturally, as Property Executive here at TPSG, with an eagle eye for the detail, I spend my working days drinking copious amounts of tea and delving into all aspects of purchasing new and maintaining existing property for our clients. Throughout this time I’ve learned an awful lot of what there is to know about property insurance.
Clients who come to us at TPSG in order to acquire commercial property through their pension will quite often have one or another goal in mind when it comes to insurance. They may already be quite knowledgeable of what’s out there and will perhaps even have a trusted provider in mind that they need us to (and we often will) support and work with if necessary. Or it may be the case that they need some guidance to tread through this apparent murky area of acquiring a new premises and rely on us to help organise this on their behalf. This is where our trusted and reliable partner will come in. In either instance there is no escaping the need for some clarity on what exactly the provider is going to cover and that you are clear of what excesses and/or additional charges may be required if you were to suddenly find yourself in the position of needing to make a claim.
Whilst it may seem like the elusive and slightly scary monster under the bed, the truth is it can be relatively straightforward, once you look past the dull subject matter and equally alienating jargon, which we all know can be infuriating at worst or dull at best to anyone who doesn’t live and breathe property insurance every day.
Why adequate protection is important
Touch wood, you will never have to use your insurance policy for a claim. But there is always a chance you will, so why take that risk? As part of our due diligence process we will always ask clients for a copy of the insurance certificate, what it covers and will query anything that doesn’t look right, even if we aren’t necessarily instructed to organise the insurance on their behalf. To us, this is simply part of the process of acquiring commercial property and is vital to protecting our clients’ pension, so in the event of an accident we know the right level of cover is in place.
Whether you’re instructing a pension provider to acquire property via a pension or via alternative means, carrying out sufficient due diligence on the provider should be treated as a necessity.
Some common insurance jargon explained
- Declared Value – the value of the property should it need to be rebuilt from scratch. In the property valuation, this is called the Reinstatement Value and the surveyor is the only person who can accurately provide this information. Without it, you may be under insuring and should the worst happen, may not be fully compensated in the event of a claim.
- Sums Insured – this is the declared value + yearly inflation rate. Some insurers may include a much higher figure at the same premium, but this is more a marketing trick to pull you in. The usual % increase is between
5 – 15%.
- Loss of Rent – this does not cover you if the tenant can’t pay. It covers you for loss of rent caused by damage to the building making it uninhabitable. The pension requires 3 years cover. Some important parts of the policy sometimes get missed too.
- Sub-letting – you must declare the occupancy of any sub-letters, as this will affect the cover.
- Public liability – this should be set at £5 million but can go up to £10 million.
- Naming of the policy – when you decide to put your property in a SIPP or SSAS pension, the Trust Company, for example PSG SSAS Trustees limited, is also part owner of the property. Therefore, the policy needs to be made out to the Trust Company or it should be noted in the policy.
- Occupancy – if the building or even part of it becomes unoccupied, you must tell whoever arranges your policy. They will then confirm the new terms and most likely the increase in premium, due to the associated risks. Insurers usually allow 30 – 90 days
at the same cover and then limit it to fire and theft. As ‘escapes of water’ are not covered, it’s imperative the water mains are turned off.
- Tenant’s Contents – this shouldn’t be included in your policy! This should be on a separate policy for the tenant and not the landlord.