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A Guide to Insuring Your Holiday Home in the Algarve
The Algarve is one of the favourite places were foreigners buy an holiday home. Regardless of whether your holiday home is used as a weekend retreat,short holidays or for commercial holiday letting, it is vital that you protect your property with adequate insurance coverage.
Most insurers see bigger risks associated with holiday homes because they are left unoccupied for long periods, prone to burglary and weather damage. Therefore, insuring your holiday home with a policy that doesn't include strict terms can be difficult.
Don't be tempted to use a standard house insurance policy and not disclose that the property is a holiday home, because insurers have the right not to pay if you make a claim and void the insurance. The best option is a specialist insurance policy that is tailored for holiday letting and occasional use.
Before you opt for the cheapest policy available that is likely to provide inadequate cover and include an array of conditions, follow the guidelines below.
This guide highlights some specific cover that you need to consider when insuring your holiday home and identifies some of the hidden restrictions that can render a policy worthless.
What cover do you need?
Your holiday home is likely to be one of your largest financial assets, so it's essential that the structure is protected. Also, mortgage lenders will insist that you have adequate buildings insurance as a condition of the loan. Typically, building insurance covers the actual structure of your holiday home, 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 fitted kitchens and bathrooms.
How much should you insure your holiday home in the Algarve for?
Most people think they should insure for the current market value of their second home. This is wrong. The sum insured needs to cover the cost of rebuilding the property should catastrophe strike and your property is reduced to rubble. The rebuild value is the full cost of reconstruction of the building(s) in its present form.
This amount must include all outbuildings, garages, pipes, domestic tanks, swimming pools, tennis courts, drives, patios, terraces, walls, gates and fences.
How do you calculate your home rebuild value?
The most accurate way to calculate the rebuild cost is to instruct a chartered surveyor to prepare a professional rebuilding cost assessment for buildings insurance purposes. Alternatively, if you had a survey report done on the property, there should be a rebuild figure listed for insurance purposes.
It is important to get this figure right to avoid being under insured.
Most insurers will automatically index link, which means the sum insured will be adjusted yearly in line with the house rebuilding cost index. Periodically check that your buildings insurance amount still reflects the actual rebuild cost, especially after structural improvements.
Holiday home contents insurance
Contents insurance is not a legal requirement but to forgoits cover is a huge gamble - the cost of replacing all your belongings is likely to cost thousands of Euros.
What items are considered contents?
This typically includes general contents within the home such as furniture, furnishings and electrical equipment. Most policies cover your contents in the event of fire, storm, flood (escape of water) 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. 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.
Holiday homes insurance policies do not usually cover personal valuables as most properties are often left unoccupied for long periods or if they are commercially 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.
Protecting contents from accidental damage
It is likely that your holiday home will be used by an array of people - friends, family and holiday makers if you are letting you home. Consequently, damage is likely to happen, from spillages, breakages and misuse. In this case, you should choose a policy that covers accidental damage (and malicious damage) to your contents so you don't bear the expense of replacing items.
Guests often aren't as careful as you and accidents do happen. On a side note, if you market your holiday let as 'pet friendly' check your insurance covers damage by pets.
Public liability insurance
It is very important that your policy includes public liability insurance, especially if you are planning to let your second home commercially or to friends. These are litigious times and this covers you for legal costs and expenses following death, injury or damage to a third party on or near your property.
Even if you are not planning to holiday let commercially, what happens if a friend uses your holiday home and they slip in the shower, break a leg and have time off work. Maybe they take legal action against you?
If you are letting your holiday home via an agency, most will insist that you have this cover, a minimum indemnity of 3 million Euros is recommended.
Liability cover is usually included when you insure buildings or contents. It is unusual to find a stand-alone policy, and always check it covers third parties staying at your holiday let.
Employers liability insurance
It is a legal requirement that if you employ people while running your holiday let business 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. You should choose a policy with an indemnity limit of at least 3 million Euros.
Holiday homes are most at risk whilst unoccupied - are you insured?
Is there a clause in the policy that excludes cover if the holiday home is uninhabited for more than 30 consecutive days? What about heating warranties?
Some insurers insist that the water system is drained during periods of unoccupancy, or that 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? Ensure you are protected and choose a policy that doesn't include complex unoccupancy terms.
Security requirements: will having the wrong locks invalidate cover?
What are the second home insurers security requirements? Do you have to inspect the property regularly or install specific locks on doors and windows? You could even find the insurance is invalidated by having the wrong type of locks on the doors or by leaving windows unlocked when you go out.
Holidays homes are attractive to burglars as they usually contain an array of electrical items and gadgets, plus it is relatively easy to identify when they are occupied or vacant. Check that theft by non-forced entry is covered - for example a burglar entering through an unlocked window or using a key. 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 cover for holiday letting
First off, if you plan to commercially let your holiday home it is important that you choose a policy that allows letting.
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 your property becoming uninhabitable as a result of the unexpected - like a burst pipe, fire or floods. During the peak holiday season such a disaster could mean thousands of pounds in lost income and a huge inconvenience for many months.
Choose a policy that will allow you to claim for the loss of rental income and pay for temporary accommodation for you or your holiday guests.
It is also a good idea to choose a policy that includes a legal advice helpline. This will come in useful, if for example you have a dispute with one of the tenants occupying your property, or with a letting agency with whom you may have entered in to a letting agreement.
Making a claim
The acid test of any insurance policy lies in the claims service. At this point you will discover the value of your policy. Does the insurer have the authority to manage and make decisions in-house or is the claims handling process out-sourced to a company outside of Portugal?. How quickly will you receive settlement? Pay attention to the small print in relation to storm and flood cover.
Some insurers require minimum wind speeds or rainfall levels to be recorded in order for a claim to be valid.
Changing to winter long term lets
If your holiday bookings are seasonal, you may wish to let your second home on a six month lease during winter months rather than leave it standing empty. Make sure your insurance allows you to do so easily.
What other charges are you likely to incur should you want to amend your policy e.g. change a name or increase the sum insured.
If there is an admin charge for doing so, then this could prove an additional expense on top of the premium.
Take steps to reduce claims - but as a priority make sure you are covered.
As you can see from the above, insurance doesn't cover every eventuality so it's important that you take reasonable steps to prevent claims. Leave a key with trusted neighbours who can check your property frequently to reduce the risk of theft, damage and alert you of any problems.
Leaving the heating on (thermostatically controlled) can minimise potential danger and water damage. Always inform your second home insurer of any alterations you make to your property that could alter the sum insured or its risk.Remember, just because your holiday home is out of sight, it really mustn't be out of mind.
Before you buy your home insurance, ask for a copy of the full policy wording. Check for any exclusions or gaps in cover and understand your obligations - some of which may be unreasonable. Hopefully this will prevent any unpleasant surprises in the event of a claim.
Consider all the points above when insuring a second home and you should be adequately protected. Choose a policy based on the value of cover - not price.Next steps: Compare holiday home insurance - identify the risks and small print that can leave you with inadequate cover or get a quote.
Disclaimer: this information should be used as a guide only and should not solely be relied upon. We advise that you read any insurance policy terms, conditions and exclusions thoroughly, seeking professional advice if necessary to fully understand the extent of cover provided.
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