Whether you’re renting out a second home as a holiday cottage or a budding property tycoon with a string of riverside apartments, any buy-to-let property represents a significant investment which you would be wise to protect. Here's how.
Although building insurance is compulsory whenever you take out a mortgage, it does not offer sufficient cover for those wishing to rent out their property. This is because the risks facing any potential landlord are very different to those facing your average homeowner.
To give you an example: say the ground floor flat that you rent out is damaged by flood water. Your is tenants are forced to move and initiates legal proceedings against you for the nasty case of double-pneumonia that they caught by standing knee-deep in freezing water.
So not only do you find yourself on the wrong end of a law suit, but you will not be receiving any income on your flat for the six months it will take to be repaired and you can get new tenants in.
Whereas standard home insurance would only cover you for the damage to the flat and your possessions, Buy-to-Let or Landlord building insurance could also provide cover for the rent that you would lose out on while the flat is being repaired - plus cover your legal expenses against the law suit issued by your tenant.
And talking of tenants… No homeowner would ever knowingly damage their own home - teenage daughters advertising house parties on Facebook notwithstanding! But for landlords it is a very different situation.
Despite background checks and references, whenever a landlord rents out their property they are trusting that their tenants will look after it.
Unfortunately, tenants are not always who they appear to be and the result could be a flat stripped of everything from the copper piping to the light switches or finding that that nice married couple have invited their sixteen closest relatives to come and stay with them for the duration of the tenancy.
Again, Landlord Insurance offers specific cover to protect you from such eventualities, including legal cover to evict unauthorised tenants and accidental damage.
If you are thinking about taking out landlord insurance, then it is very important that you consider the issue of Building Sum Insured (or BSI as it is known).
Landlord building insurance is based up the cost of rebuilding your property should it be completely destroyed. Get it wrong and you could end up paying far too much for your insurance.
When calculating the BSI of your property it is important to include things like the clearance of the site, surveyor fees as well as the actual cost of the rebuild.
There are a number of tools online that can help you calculate your rebuild cost, but it should also be stated on your mortgage statement. of course if you're in any doubt the best thing to do is to get a professional survey done to ensure your BSI is as accurate as possible - this will, however, come at a cost.
If you take out Landlord contents insurance you'll need to work out how much it would cost to replace all of your posessions in the property and get cover accordingly.
As with any form of insurance, an insurers will assess the risk of your property and set your premiums according to the likelihood of you making a claim.
Factors that will influence your premiums include:
The location of the property (property in a 'bad area' will mean higher premiums)
The types of property that can be covered by Landlord insurance are: houses, bungalows, flat(s) in a purpose-built block, flats/bedsits in converted houses where you wish to insure the entire property and Holiday homes in the UK. It is also possible to insure multiple properties with just a single policy.
The basic kinds of cover typically offered by Landlord Insurance policies are as follows:
Landlord building insurance
Typically covers your building’s structure against things like fire, lightning, explosion, storm, earthquake, flood, subsidence, property owners liability, riot, escape of water, falling trees, theft, malicious damage, ground heave and land slip. Cover will start at around £75,000 to a maximum of £2 million.
Landlord contents insurance
Of course whether you need this depends on whether you are renting your property as furnished, part-furnished or unfurnished. Contents cover will also include carpets, curtains, fixtures and fittings – basically anything that can be damaged by fire, flood or theft – and is typically up to a maximum of £50,000. Remember to check that your policy ensures that your contents are replaced old for new. You can also get limited contents cover for just fixtures and fittings.
As a Landlord you are responsible for the health & safety of your tenants. Liability cover will protect you against lawsuits for accidents, injuries or even fatalities at your property. The typical maximum for standard liability is £2 million.
Alternative accommodation insurance
Again this relates to your property becoming uninhabitable. If this were to happen then, as the name suggests, alternative accommodation insurance would cover the cost of your tenants living elsewhere while your property is being repaired.
There are also some optional extras available which may also be worth considering:
Loss of rent insurance
This can provide cover in the event that your property becomes uninhabitable and as such you're unable to rent it out. Usually you would get 20% of building’s sum insured for 12 months but this will vary depending on the policy.
Accidental damage insurance
This covers you against accidental damage to your property caused by your tenants - some policies include this as standard, others include it as an add-on.
Emergency assistance cover
This usually covers the cost of calling out a contractor in the event of an emergency such as the breakdown of a boiler (although it doesn’t cover problems that are a result of lack of maintenance). Many providers will offer a 24 hour/365 days a year call out service to their clients. This may be an option worth investigating if you don’t live near your property or don’t use a property management company.
Rent guarantee cover
This will cover you if your tenant does a bunk in the middle of the night owing you rent. Some also include £10,000 of legal cover and policies are available for either 6 or 12 months to suit your particular tenancy agreement. For some landlords this is a particularly attractive piece of cover as having a tenant default on rent payments could effect your ability to repay your mortgage.
This covers any legal costs arising from tenant disputes such as not paying rent, refusing to leave property or unauthorised inhabitants.
You may find that who your tenants are will have a significant effect on your premiums and some policies will exclude certain types of tenants all together. These typically tend to be either students, asylum seekers or people on benefits. You can get cover for these riskier categories of tenant with a non-standard policy - although these do tend to attract a higher premium.
Additionally, whenever you decide to rent out your property you should always ensure that you inform your mortgage lender, insurer or leesee (if you are a lease holder), otherwise it could lead to any future claim being refused.
For many people the purchase of a property is their single biggest investment. When you consider the greater exposure to risk faced by renting out that property - combined with the amount of capital invested in them - it makes sense to protect yourself.
As with any type of insurance, the key to getting the right amount of cover at the right price is to shop around.
Decide the level of cover that you require by looking at things like the type of tenant you will renting your property out to, the amount of contents cover you need (if any at all) or whether you require extras like legal cover.
Once you're confident about the type of protection you need you'll be able to compare landlord insurance policies to find one that suits. Remember to base your decision on the quality of cover as well as just the cost - this is the only way to make sure that you're not going to be left footing the bill if things go wrong.
You will find that some policies will offer deals such as including free accidental damage cover or discounts on multiple properties. These are always worth looking at, but only worth taking out if they do genuinely provide value for money.
Finally, if you can afford to do so, it is always best to pay for your policy outright in one go. That way you will avoid the sting on monthly interest charges.
Someone much older and much wiser once said that; “there’s nowt as queer as folk.” That goes double when dealing with the vagaries of the buy-let market. Most would agree that the protection offered by Landlord insurance, plus the peace of mind it brings, far outweighs any cost.