10 Most Popular Mistakes in Property Insurance
May 15, 2015
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There are some standard mistakes in corporate property insurance which are made not only by novices in this field but also by those who’ve been drafting property insurance policies for several years now. Quite often these mistakes are not associated with the rating of particular insurance company or nuances in reinsurance agreement. Those are basic clauses in the insurance policies. What is more, they can easily be amended in the process of negotiating them with the insurance company given information about that is available beforehand.
Most frequent mistakes are described in details below.
1. Lack of valuable interest
Sometimes a Client is willing to conclude insurance policy without having valuable interest in this property. To be more exact, the agreement can be concluded but in case of an insured event the Insured will not be entitled to indemnity. Let me give you an example. Can a person insure his colleague’s apartment and receive the indemnity as well? No, he cannot. However if he signs the lease agreement for this apartment or receives power of attorney for insuring it from the owner the insurance policy will be completely valid as the abovementioned actions provide the valuable interest for the Insured. If the real estate object is owned solely by one of the spouses, another spouse has no right to sign the insurance policy for this property. Speaking about nuances in corporate property insurance, their number is quite immense. To begin with, it’s worth clarifying whether or not the facilities have been put into operation or entered in the books. Therefore checking the valuable interest of the Insured is a must before starting to negotiate the terms and conditions of the insurance policy itself.
2. Description of insured property
Second most popular mistake is inaccurate or incomplete description of the insured property. Let’s take insuring buildings. Every insurance company has different understanding of what is to be included into this category. Make sure to familiarize yourself with the definitions of the property you would like to insure which are contained in Terms and Conditions - the insurer’s basic document for drafting insurance policies. Are signs, elevators, escalators or utility lines considered to be integral parts of buildings in terms of insurance? Please note that that if policy refers to the structural parts of the buildings only, damage to pipes, utility lines or interior finishing works will not be covered by such policy.
3. Adjustment for wear and tear
First of all you should decide how you would like to insure your property. Meaning which value is to be taken as basis for indemnity calculation. If the policy clauses stipulate that the indemnity amount is to be adjusted for wear and tear, the indemnity amount will be cut by 10-30 % for the new buildings. However even relatively old buildings can be insured without the abovementioned clause. All you need to do it negotiate this possibility with the insurance company from the very beginning.
4. Book value as indemnity basis
In continuation of the wear and tear aspect, we would like to stress out that sum insured should not be equal to the book value at the moment of signing policy. It’s no secret that book value is much smaller than the market value of the real estate or equipment. If you made up your mind to receive enough money to repair the damaged property insure your real estate based on the replacement value. You can set the sum insured at the level of market value of the insured property.
5. Correspondence of sum insured and market value
At the moment of concluding insurance agreement Client is responsible to define the sum insured. At the same the issue of checking whether or not this sum corresponds with market value of the insured property comes up only in case of insured event. If the sum insured is significantly lower than the market value, the insurance company has a right to apply the underinsurance clause when calculating the indemnity amount. That is the common practice worldwide.
6. Deductible amount equal to 1 %
1 % is usually the biggest deductible amount which is still acceptable for the lending institutions. Very often the Client prefers to choose the cheapest insurance option with 1 % deductible amount. What is left out in this regard is that simple fact that 1 % can be equal to millions of hryvnas which will offset the here-and-now economy at the moment of concluding the agreement.
7. Period of insurance is equal to period of loan
If the term of your loan is longer than 1 year make sure to renew the insurance policies annually. First of all, you will be entitled to the discount given the absence of damage claims during the year. Second of all, you can be sure that the insurance company will try and provide you with the better service in order to remain your partner for the whole period of loan.
8. Late payment of insurance premium
Please be aware that if you miss the deadline for insurance premium the insurance policy will not come into effect. It’s best to sign the addendum to the insurance policy to shift the deadline. Otherwise an insurance company can use the delay as the legitimate ground for indemnity denial.
9. Mistake in the address
Should you make a mistake in the address of insured territory, you risk being denied indemnity altogether.Should you make a mistake in the address of the insured territory, you risk being denied indemnity altogether. Make sure to put it exactly like it is named in the legal documents to save yourself time and money for proving that you meant the very same street.
10. Not using servicing of professional advisors
It’s much easier to avoid mistakes if you conclude insurance agreements with the help of insurance broker. Experts in this field come across tons of nuances in their every day practice. They will make sure for you to avoid the pitfalls in the insurance agreements and receive guaranteed indemnity in case of insured events. Besides, your employees will save much time if the lion’s share of insurance related tasks will be transferred to a broker. Therefore not using broker’s services is the biggest mistakes of all.
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