Your second home is likely to be one of your most valuable assets and getting the right insurance cover whether it’s used as a weekend retreat, left unoccupied or rented out is vital. This quick guide explains the different types of cover available and the conditions, caveats and exclusions you need to watch out for.
What makes second homes different?
Finding comprehensive insurance for a second property that doesn't include an array of restrictions or within budget can be difficult.
Most insurance companies associate second homes as an increased risk because they’re typically left empty for long periods, which means weather-related damage or a break-in will go unnoticed. If you let your house out to paying guests there’s a further risk of personal injury or damage.
You can't take out a standard home insurance policy without telling the insurer that it’s a second home, and not your main residence, as this could lead to the insurer refusing to pay out in the event of a claim. A conventional home insurance policy generally won’t be valid if the property is being rented out or left empty for more than 30 days.
What you need is a specialist UK holiday home insurance policy that is tailored for holiday letting and covers occasional use.
What does buildings insurance cover?
Buildings insurance is normally compulsory if you have a mortgage on the property. But even if you don’t have a mortgage, then you should still consider protecting what is likely to be one of your largest financial investments.
Typically, building insurance covers the actual structure of your home, any outbuildings, garages, swimming pools, walls, gates and fences. These tend to be covered against the cost of repairs or rebuilding, debris removal and professional fees following loss or damage caused by fire, storm, flood, burst pipes and subsidence.
Building insurance should also cover permanent fixtures and fittings within the buildings, such as a fitted kitchen and bathrooms.
How much buildings insurance do you need?
Most people think they should insure for the current market value of their home. This is wrong. The sum insured needs to cover the cost of rebuilding the property should catastrophe strike and your house is badly damaged or even destroyed. The rebuild value is the full cost of reconstruction of the building(s) in their present form. This amount must include all outbuildings, garages, domestic oil & gas pipes, domestic oil fuel tanks, swimming pools, tennis courts, drives, patios, terraces, walls, gates and fences.
How to calculate the rebuild value
The most accurate way to calculate the rebuild cost is to hire a chartered surveyor (who is a member of the Royal Institution of Chartered Surveyors) to prepare a professional rebuilding cost assessment for buildings insurance purposes. if you had a survey report done on the property, there.
Alternatively, a mortgage valuation, the deeds to your home or a previous survey should include a rebuild figure for insurance purposes. You may need to increase the figure to account for inflation and any structural improvements you have made.
To get a rough idea of the rebuild value, visit the Association of British Insurers website where you can use the online rebuilding cost calculator and read some good advice.
It is important to get the sum insured figure right to avoid being underinsured and having a claim settlement reduced.
In the event of a claim, a loss adjuster may be appointed who will evaluate if your sums insured are correct. In the event of underinsurance a ‘condition of average’ will apply. This means the amount that is paid out will be reduced by the percentage that you’re underinsured.
For example, if it costs £200,000 to rebuild your home but you only insured the buildings for £100,000, and the claim is for £50,000, the payout would be 50% of the total, or £25,000.
Second home contents insurance
Contents insurance is not a legal requirement but to go without cover is a huge gamble. According to The Association of British Insurers, the average value of contents in a three-bedroom family home is estimated at £55,000. Without contents insurance, you would have to cover the cost of replacing items.
What are contents? Generally, everything that you would take with you if you moved house would be classed as contents. Such as furniture, furnishings and electrical equipment, whereas the doors and fitted cupboards come under buildings insurance.
Most policies cover your contents in the event of fire, storm, flood, escape of water and theft. There will usually be a limit on certain items above a particular value, so check.
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. Do an inventory, room by room. 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.
Second home insurance policies do not usually cover personal valuables. If you take valuables to your weekend home you should insure them under the all-risks section of your main household policy or travel insurance. It also doesn’t cover your guests’ possessions. They’ll need to take out their own insurance if they want to protect their belongings.
Is accidental damage covered?
It is likely that your second home will be used by a range of people - friends, family and holidaymakers if you holiday let. It’s inevitable that accidents will happen.
Most policies will not cover accidental damage to your buildings or contents as standard. You will have to pay an additional premium if you want to be covered for incidents such leaving a tap on, spilling a glass of red wine onto your carpet, or a ball being kicked through your window.
Also, check that the policy covers malicious damage, damage by paying guests and damage caused by a pet if your holiday rental is pet-friendly.
Public liability insurance
However well prepared you are, accidents do happen and can be caused by the simplest of things – a cracked tile, a rug at the top of stairs, or a trailing wire. A single compensation claim in these circumstances can be financially crippling. If you are found to be legally liable, public liability insurance covers you against the cost of claims arising from injury or damage suffered by a holidaymaker or visitor.
If you are letting your weekend home via a cottage letting agency most will insist that you have adequate public liability cover. A minimum indemnity of £3m is recommended. Always check it covers third parties who are renting your holiday let.
Employers liability insurance
It is a legal requirement that if you employ people at your second home you have employers’ liability insurance. This covers legal costs and expenses following death or injury to anyone you employ. For example, a gardener, cleaner or handyman. Again, choose a policy with an indemnity limit of at least £3m.
Your property is most at risk whilst unoccupied – but are you covered?
When second homes are unoccupied they are much more susceptible to break-ins and squatting. Also, damage from things like a burst water pipe or storm can cause serious damage to a property when no one is there to see it.
For this reason, insurers generally include unoccupancy exclusions. Unless you read every word of your insurance policy it’s unlikely you will know exactly what it does and doesn’t cover when it’s unoccupied.
What exclusions should you look out for?
- Are there clauses in the policy that excludes vital cover whenever the property is left unoccupied?
- What about heating warranties? Some insurers insist the water system is drained when the property is unoccupied, or that it is heated to maintain a specified temperature during winter. Would you be covered for water damage if your heating was off, or if you forgot to drain the water and a burst pipe occurred whilst your home was unoccupied?
- How often do you have to inspect the property?
Sub-zero temperatures and prolonged frosts are common in the UK. Subsequently, burst pipes are common in empty, inadequately heated second homes. To ensure you are protected choose a policy that doesn't include complex unoccupancy terms and winter restrictions.
Burst pipes are one of the biggest risks that unoccupied homes face!
Security requirements: will having the wrong locks invalidate cover?
What are the security requirements? Will the insurance be invalidated by having the wrong type of locks on the doors? But having the right locks and security isn’t enough. If you or your guests fail to lock doors or leave a window open when out, then your insurer may not pay out for a burglary.
Second homes are attractive to burglars as they usually contain a collection of electrical items and gadgets, plus it is relatively easy to identify when the property is occupied or vacant.
Check that theft by non-forced entry is covered. If a burglar entered through an unlocked window or by using a key would you be covered? Many policies require proof of forced entry for a theft claim to be valid.
When holiday letting to virtual strangers it's also important to ensure theft by guests is covered.
Loss of rent and alternative accommodation
One of the biggest worries when renting out your home is if your property becomes uninhabitable from an insured event such as a burst pipe, fire or flood. Such a disaster could mean thousands of pounds in lost rental income and a huge inconvenience for many months.
Choose a policy that allows you to claim for the loss of rental income from your bookings and pay for temporary accommodation for holidaymakers in the property at the time loss or damage.
You should also consider adding legal expenses cover which usually gives you access to legal advice and covers the cost of taking or defending specified legal action, such as the eviction of overstaying guests.
The acid test of any insurance policy lies in the claims service. At this point, you will discover the value of your policy. How are claims handled? Is the claims handling process out-sourced to a company outside of the UK? How quickly will you receive a settlement?
Know your excess
A compulsory excess is an amount deducted from any claim you make on your insurance policy. For example, if you claim for £500 and you have a £50 excess, you'll only receive £450. Different sections of your policy usually have different excess levels. For example, the theft excess may be £150, whereas a typical subsidence excess is £1,000.
Some insurers may reduce your premium if you choose an additional voluntary or higher excess, but this could make claiming on your policy very expensive or not worth it for minor claims.
Flexibility to change to long-term lets
If your holiday bookings are seasonal, you may wish to let your second home on a six-month lease during the quieter winter months rather than leave it standing empty. Make sure your insurance allows you to switch easily.
What other charges are you likely to incur should you want to amend your policy during the year, e.g. changing your address or personal details. If there is an admin charge for doing so, then this could prove an additional expense on top of the premium.
Selecting the right insurance policy
Hints and tips
Policy wordings aren’t a riveting read. But as insurance doesn't cover every eventuality it’s important you read terms and conditions to make sure you understand what you are covered for, what is excluded and what your responsibilities are.
- Check any winter unoccupancy conditions – do you have to leave your heating on or drain down?
- Check how long you can leave the holiday home unoccupied before invalidating cover – is it hours or days?
- If you plan to commercially let your second home it is important that you choose a policy that allows letting. Some insurers only cover use by you and your family.
- Make sure public liability also covers holidaymakers as well as items outside such as hot tubs
- Check if you are covered for theft by guests and if you or a guest leaves a door unlocked or a window open
- Check your policy for any specific security requirements and make sure you fulfil them
- Can you include accidental damage by paying guests as well as yourself?
- Home insurance is not a maintenance contract and will not cover damage caused by lack of maintenance, general wear and tear, mechanical or electrical breakdown.
- A cheap policy isn’t good and a good policy isn’t cheap. While obviously you want to keep costs down, you also need the best cover possible. When shopping around compare like with like and choose a policy based on the value of cover - not the lowest price.
This article only gives a brief overview. For further advice please contact Schofields to ensure you have the right cover for your second home. Our specialist policy has no winter restrictions, unoccupancy or security clauses and provides full cover whilst the property is commercially let or occupied by friends or family.