When it comes to making a guest house insurance claim, there are a variety of reasons why it might not be paid out in full, or at all. To help avoid any surprises, we’ve compiled a list of the top 10 reasons claims may be reduced or rejected.
1. Underinsurance
One of the most common issues is underinsurance. It’s vital to have accurate, up-to-date valuations for your buildings, and contents. Our experience shows that around 81% of buildings are underinsured. * To avoid this, Hodgson Insurance Limited can arrange discounted desktop valuation services for our guest house customers. Just call us on 01288 353999 to find out more.
2. Inexperienced or indecisive loss adjuster
Having an experienced loss adjuster who works solely in your best interest is crucial when dealing with significant losses.
3. Inadequate Business Interruption (BI) cover
While 36 months might seem excessive, it often provides the necessary time to restore your business to its pre-loss trading levels. Depending on your specific situation, 24 months may suffice, but 12 months is usually inadequate.
4. Non-disclosure
It’s essential to disclose all relevant information that could influence an underwriter’s decision to provide cover. This includes previous County Court Judgements (CCJs), adverse directorships, criminal records, and any past insolvencies. Failing to disclose these can result in a claim being denied.
5. Lack of insurable interest
To make a valid claim, you must have a financial interest in the property you’re insuring. Without this, your claim could be rejected.
6. Misrepresentation of risk
Even minor misrepresentations can lead to claim denial under the Insurance Act. For instance, 1 of your guest rooms has a kitchenette, which isn’t normal for a guest house, it must be disclosed to your insurer. Anything that could increase the likelihood of a loss should be made clear.
7. Lack of supporting documentation
Claims can be denied if you don’t have the necessary documentation to back them up. This could include lacking an electrical safety certificate or failing to keep receipts for cash sales. Ensure you comply with all regulations and keep proper records.
8. Misunderstanding percentage uplift/declared value basis of cover
Insurance policies often include both a “declared value” and a “sum insured” for buildings. The declared value should accurately reflect the building’s value on the first day of the insurance period. The sum insured typically includes an allowance for inflation throughout the year (usually 15-25%). However, the sum insured will only protect you adequately if the declared value is correct.
9. Breaches of security warranties
Security warranties are specific conditions in your policy that must be adhered to. For example, external door and window locks must meet the required standards. Make sure you understand your obligations under these warranties.
10. Exclusions for fires caused by cannabis farms
This is becoming an increasingly significant issue for landlords of guest houses and private homes. Many policies now exclude cover for fires caused by cannabis farms, so it’s crucial to ensure your policy covers this risk. If you’re unsure, consult your insurance advisor.
By understanding these common pitfalls, you can take steps to ensure your guest house insurance cover is robust, reducing the likelihood of issues when it comes to making a claim.
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