Holiday home owners may be taking unnecessary risks

Letting a holiday home commercially has many benefits: however, there are also risks - such as not having the right insurance cover to protect your valuable investment.

Independent insurance intermediary, Boshers Ltd (boshers.co.uk), gives its top tips on ensuring the correct insurance is in place to prevent that cottage in Cornwall from becoming a calamity or the rustic farmhouse in Filey a financial farce if the unexpected occurs.

Mark Lavington, director of Boshers, says: “Many holiday home owners may unwittingly be relying on normal home insurance cover or, worse, have no cover at all. If you let out your holiday home, you should make sure the insurer is aware, and that all the necessary covers are agreed.”

He advises: “Your policy must cover property owner’s liability of at least £2m for injury to individuals - such as your tenants, visitors or guests - and damage to their property. In this litigious society, anyone who owns a business can easily find themselves on the wrong side of a compensation claim that can seriously damage their wealth. Whether you manage the property yourself or let through an agent, it is equally important that you have liability cover. However, cover is no substitute for good risk management. It is therefore vital that you carry out a full risk assessment of your holiday home and its garden and meet relevant safety legislation.”

He adds: “You should also have employer’s liability insurance. As an owner of a UK holiday let, you might think this is unnecessary. However, in the course of managing your property, you will probably employ a casual cleaner, gardener, handyman, painter and decorator, etc. A quality holiday home insurance contract should provide employer's liability insurance cover of £10m to protect you against claims made against you in respect of your legal liability for death or injury to such employees.

“Buildings cover is also important. To properly protect your holiday home, you need to cover all buildings against all insurable risks for the full reinstatement cost, including any garages or outbuildings; fixtures and fittings; patios and driveways; garden walls, fences and swimming pools. You must include the cost of clearing the site in the event of complete destruction and the associated legal, architect and surveyor fees. Remember, the reinstatement cost is unlikely to be the same as the market value of the property or the price that you paid for it*, and is worth proper research. If you under-insure your building, any claim payment may be reduced proportionately, which could involve a significant loss to you.

”Most insurers will index link the buildings sum insured so that you maintain an accurate insurance value over time but this depends on you getting the right value in the first place.”

As for contents insurance, Mr Lavington says: “The very nature of a holiday property is that it is a `home from home' and is therefore let on a fully furnished basis. As holidaymakers’ expectations and competition increase, the owner will often spend tens of thousands of pounds furnishing their holiday home. LCD and plasma TV screens, surround sound home entertainment systems, hot tubs and expensive garden furniture are becoming increasingly common. A policy that includes full accidental damage cover on a new for old basis will provide you with the peace of mind that your property is protected. The sum insured should be adequate to cover the replacement value of the contents in total.

”Owners should consider completing an inventory of contents together with photographic evidence and schedule of values in case of a total loss. A tip for photographing your audiovisual electrical equipment is to take a shot of the serial number, which can help identification and recovery in the event of theft.”

He continues: “Your holiday home policy should also provide loss of rental income cover for insured perils that make the property uninhabitable. For example, it may take up to two years to rebuild a property levelled by fire; you should therefore check that you are covered for sufficient loss of rental income for this period.”

Finally, Mr Lavington advises that the holiday home owner must not fall foul of the ‘powers that be’. He says:

“Remember to get permission from your mortgage lender and your landlord - in the case of a leasehold property - before you let your home for short-term holidays; otherwise your insurance could be invalidated. Make sure you understand your policy cover and your obligations regarding any warranties. You or an agent may need to inspect your property every 14 days while empty, or ensure a minimum temperature is maintained during cold spells if the water isn’t turned off and drained. Do check that you are still fully covered even if your property is vacant for long periods; some policies will reduce cover to a minimum or even exclude certain provisions completely.

“If your holiday letting is seasonal, you may consider letting the property on a short hold tenancy agreement for six months. Make sure your holiday home insurance policy allows for this.”