Insurance
Landlord’s insurance
If you’re letting a property, it’s essential to protect your investment by insuring its buildings and contents. While regular home insurance may still cover you, there are extra risks involved where tenants are concerned, which means you may want to consider taking out a specialist landlord’s policy.
Firstly, if you’re letting what was your home it’s vital that you inform your existing insurer you are doing so or your policy could be null and void. Your insurer may be happy with this, although it may insist your tenants meet certain criteria, and may offer you the same cover at the same price. “If your existing insurer says it will cost more, look around for another policy,” advises Malcolm Harrison, spokesman for the Association of Residential Letting Agents.
Buildings insurance
While home insurance is not a legal requirement, you will have to take out buildings insurance if your buy-to-let property is mortgaged and, in any case, it would be unwise not to. This covers the structure of the building and everything that would normally be left behind when occupiers move out, such as garden walls, paths and fixtures and fittings, against damage caused by perils such as burglary, fire, flood and burst pipes.
The sum insured is usually the rebuild cost – not the market value of the property – which is the cost of rebuilding the property should it be completely destroyed. This sum can be found on your original valuation report and could be more or less than the market value, depending on the property’s age. Some insurers, however, will offer cover for an unlimited amount, which means there is no need to state the rebuild cost.
Two major shortfalls of regular buildings insurance policies where buy-to-let properties are concerned are that the property may not be covered if it is empty for more than 30 days – a problem during any extended void periods – and that cover for your liability as owner for any injuries that take place at the property may not be sufficient. You are also unlikely to be covered should anyone employed by you be injured at the property.
Contents insurance
It’s advisable to take out contents insurance as your tenants’ deposits may not cover any damage that occurs. If you are letting the property unfurnished there is no need to take out full contents insurance – just get cover for damage to items such as carpets, curtains and any electrical appliances supplied with the property. This could range from £5,000 to £15,000-worth of cover. Your tenants should insure their own possessions.
If the property is furnished, you will need full contents insurance, which may need to provide more than double the amount of cover than if it’s unfurnished. “You are only insuring your own contents, however – the tenants must still insure their own possessions,” says Malcolm Harrison.
With a standard home insurance policy, if you are letting the property the excess is likely to be more, which is often not the case for buildings insurance, or you may not be covered at all so check this. The 30-day limit is also likely to apply to empty periods and you may not be able to pay extra for the option of accidental damage cover as you would as an owner-occupier.
Specialist products
With the number of limitations of regular home insurance where the needs of landlords are concerned, special landlord’s or buy-to-let insurance is likely to provide you with better cover and decrease the risk of being unable to claim when damage occurs to the property or its contents.
With the number of buy-to-let properties having increased significantly in recent years – the number of buy-to-let mortgages increased by 68% between 2003 and 2005 according to the Council of Mortgage Lenders – there are an increasing number of landlord’s insurance policies available as insurers aim to cash in on this market.
These policies include essential features such as increased cover for owners’ liability and loss of rental income should damage to the property mean it must remain empty, different levels of contents cover according to whether the property is furnished or unfurnished and vacant periods of up to 120 days allowed. However, there may restrictions on letting to DSS tenants, asylum seekers or students.
Optional extras
There may also be options to pay for extras such as accidental damage cover, employer’s liability cover and legal protection to cover any legal expenses that arise as a result of letting a property, such as for contract disputes or debt recovery, which can be particularly worthwhile considering how expensive legal services can be.
Home emergency cover can also often be added. This pays for contractors’ call out charges, labour and parts and materials up to a certain amount to deal with problems in range of areas including plumbing, heating and roofing – particularly useful if you manage the property yourself and live some distance away from it.
A number of mainstream insurers now offer landlord’s insurance, including Endsleigh, Norwich Union and Sainsbury’s Bank, but you may be able to get a better deal on a more suitable product through smaller specialist insurers and specialist buy-to-let mortgage brokers such as Landlord Mortgages, so shop around.
Rent guarantee
Another form of landlord’s insurance that may be worth taking out is rent guarantee insurance in case your tenants fail to pay the rent, which could be for a number of reasons including redundancy or an inability to work as a result of sickness or injury.
If you are unfortunate enough to get bad tenants you may have to go through extensive legal proceedings to regain possession of the property through eviction. Rent guarantee insurance is relatively inexpensive and enables you to minimise any financial loss should this happen – potentially substantial if the property is mortgaged.
To be covered for this, the insurer will want to make sure adequate checks on the tenants have been carried out. “Insurers like to know who is living in the property and will want to see references so for this reason it can be helpful to use a letting agent,” says Malcolm Harrison.
While it’s essential that you take out both buildings and contents insurance and ensure the policy covers your needs as a landlord, the level of insurance you take out and the added extras you choose will depend on your attitude to risk, the size of your property portfolio and how involved you are in the management of the property.
