Insurance On An Overseas PropertyPosted on: 15 October 2008 by Gareth Hargreaves
Expert advice for insuring a holiday home or buy-to-let property abroad.
Many overseas property owners encounter difficulties obtaining suitable insurance. Consequently they choose a local policy that is written in a foreign language and not suitable for the special requirements of holiday home owners. This might be a quick solution but may prove costly in the event of a claim when you translate the policy and discover that vital cover is excluded.
Whether you are going to use your overseas property as a holiday hideaway or let it for investment income, it is essential that you arrange suitable insurance cover. Most insurers see bigger risks associated with holiday homes because they are often left unoccupied for long periods, prone to burglary and weather damage.
As your overseas home is hundreds of miles away it is essential that you have adequate insurance. Why should you have to worry about a potential theft or water damage claim being invalid because you have left your property unoccupied for an extended period, or that guests might cause damage or injure themselves?
When obtaining an insurance quote, make sure you take into account the following tips in order that you obtain the most appropriate level of cover for the best possible price.
Should you arrange cover with a local broker or a UK based insurer?
If the purchase involves a mortgage, the lender or notary will usually insist that a sufficient level of buildings cover is in place to protect the loan, or they may have their own recommend insurer.
Before you choose a foreign policy it is important that you read the small print so that you understand the scope and restrictions of cover. This can be a problem if the policy is written in a foreign language and you aren’t fluent. If in doubt get it translated.
You may find that policies offered by overseas insurers are cheaper, however, cover tends to be much more limited than UK policies. It is a false economy to choose the cheapest policy at the expense of the cover you need. You may be better off choosing a comprehensive policy in the UK, that’s written in English and specifically designed for your overseas property.
Under the terms of a UK policy, if you are a UK resident, UK law applies so you don’t have to worry about complications regarding overseas laws. You will also enjoy greater protection if the insurer is regulated by the Financial Services Authority.
What cover do you need for your overseas property?
Buildings Sum Insured For Houses
The sum insured should be the full cost of reconstruction of the building(s) in their present form, including any associated costs, such as removal of debris, architectural and other professional services, not the purchase price.
This applies to the main building as well as outbuildings and swimming pools, walls, gates and fences, domestic oil and gas pipes, domestic oil fuel tanks, tennis courts, drives, patios and terraces.
Building insurance tends to cover against the cost of repairs or rebuilding following loss or damage caused by earthquake, fire, storm, flood, burst pipes and so on. Building insurance should also cover permanent fixtures and fittings within the buildings, such as fitted kitchens and bathrooms. Some overseas policies may exclude swimming pools and outbuildings from the buildings cover so check these are included.
Buildings Sum Insured For Apartments
You may find that your complex or apartment block service charge fees include community buildings insurance. Each policy differs but generally this cover is limited. You must obtain a copy of the full policy wording and make alternate arrangements if necessary.
We recommend that the buildings sum insured includes at least the total cost of redecoration and the total cost of any improvements, such as bathrooms, kitchens, flooring, air conditioning, and so on. This is because the level of cover provided by the managing agent’s buildings policy varies widely and often falls short of what one would expect from a UK policy. If there is no managing agent’s policy, the sum insured should be set as if the property were a house.
Calculating The Rebuilding Cost
This can be difficult, especially if you have bought an old cottage or farmhouse. You might find the rebuilding cost of such a property is more than the actual market value.
To calculate the rebuild value of your holiday home you should ideally commission a local surveyor to assess the amount that a property should be insured for. Your lawyer or mortgage lender may also be able to advise you on the rebuild cost. Alternatively if you had a survey report done on the property, there may be a rebuild figure listed for insurance purposes.
Be aware that it is your responsibility to communicate the correct rebuilding cost to your insurer. It is important to get this figure right because if you underinsure you may not get the full amount you were expecting in the event of an insurance claim. Most insurers will automatically index link, which means the sum insured will be adjusted yearly to take into account changes in rebuilding costs.
Contents insurance typically covers general contents within the home such as furniture, furnishings and electrical equipment. Most policies cover your contents in the event of fire, storm, flood and theft.
To calculate the contents sum insured you should work out how much it would cost to replace your contents on a new for old basis at today's prices. As a rule of thumb when deciding what are contents, include everything you would take with you if you moved home. It is important that you get this figure right and don't undervalue your contents, as in the event of an insurance claim you may not get the full amount you were expecting.
Many overseas insurance policies do not usually cover personal valuables as most properties are often left unoccupied for long periods or holiday let. If you take valuables to your holiday home you should insure them under the all-risks section of your main household policy or travel insurance.
Cover Your Contents For Accidental Damage
It's surprising what can get broken. Are you covered if you or a holidaymaker damages a chair or a TV?
If you are going to use your overseas home for holiday letting choose a policy that covers accidental damage to your contents, including damage caused by holidaymakers. Guests often aren't as careful as you and accidents do happen.
Legal Liability Insurance
It is very important that you choose a policy which includes public liability insurance, and that it extends to cover holidaymakers if you are planning to let your holiday home.
These are litigious times and liability insurance will cover you for legal costs and expenses following death, injury or damage to a third party on or near your property. For complete peace of mind a minimum indemnity of £3 million is recommended.
Even if you aren't planning to holiday let your property in France, it is still advisable to get suitable liability cover. What would happen if you let a friend use your holiday home and they slip in the shower, injure themselves, and have time off work? Maybe they would have to take legal action against you?
If you have a swimming pool ensure that in the event of an accident you are covered under your public liability insurance. You should also check the insurer's requirements regarding swimming pool safety law in the country in which your overseas property is located. You may discover that unless your swimming pool is properly gated and fenced off with a suitable approved swimming pool security system in place, some insurers may invalidate your buildings insurance cover.
Cover For Loss Of Rent & Alternative Accommodation
If you plan to let your overseas property it is important that you choose a policy that provides cover for this activity. Some insurers only cover use by friends and family as letting can increase the risk of a claim.
One of the biggest worries when holiday letting is if an unforeseen incident results in your property becoming uninhabitable as a result of, say, a burst pipe or a fire. During the peak holiday season such a disaster could mean thousands of pounds in lost income and a huge inconvenience. Choose a policy that will allow you to claim for the loss of rental income and pay for temporary accommodation for you and your holiday guests.
Check your policy covers the cost of getting you to your holiday home following a large claim - you’ll probably want to be there to organise repairs and replacements.
Are local taxes included in the premium?
In some countries insurers are required to collect insurance taxes for the government and you must ensure that these are included in the premium quoted.
Is there a clause that excludes cover if the house is uninhabited for more than 30 consecutive days?
You will find that most insurance excludes cover if the property is unoccupied for more than 30 consecutive days, the property must be visited every week, and on special shutters being installed. You could even find insurance invalidated by having the wrong type of locks on the doors.
Some insurers also insist the water system is drained during periods of unoccupancy, or the property is heated constantly to a certain minimum temperature. Would you be insured if your electric heating failed due to a power cut, or you forgot to drain the water, and a burst pipe occurred?
Remember, failure to comply with the conditions of the policy could mean your claim is ruled invalid, leaving you responsible for the cost of the damage caused.
You should also make certain that your policy provides cover against natural catastrophes, such as floods, earthquakes and so on.
What are the policy conditions?
Many insurance policies for overseas holiday homes have conditions in the small print that must be followed. Before you buy insurance, ask for a copy of the full policy wording. It will tell you what obligations and requirements are placed on you, some of which may be unreasonable. Hopefully this will prevent any unpleasant surprises in the event of a claim.
Remember, just because your holiday home is out of sight, it really mustn’t be out of mind. Arranging suitable insurance shouldn’t be difficult providing you make appropriate arrangements. Consider the points above when choosing insurance for your overseas property home and you should be adequately protected, thus giving you piece of mind.
By Derick Ivimy
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