As the private renting sector grows, and with savings rates floundering at next to zero, more of us are looking at property as a way to invest money. Becoming a landlord offers a reliable income, which makes it an attractive prospect for property owners. However, do new landlords really know what they are doing when it comes to insurance?
As a homeowner, insurance is simple – you need buildings insurance to protect the structure and fittings of your home, and contents insurance for your belongings. But landlord insurance is more complex than that. What would you do if a tenant moved out without paying rent, or if they caused damage to your property, leaving you unable to let it out for several months?
Here at the Insurance Knight Consultancy, we've put together this guide to help you get the most out of your landlord insurance.
WHAT'S THE DIFFERENCE BETWEEN HOME INSURANCE AND LANDLORD INSURANCE?
Most buy-to-let mortgage providers will require proof that a landlord has adequate buildings insurance in place, however it's not as simple as taking out a standard home insurance policy. Landlords face additional insurance needs. Although these are not usually compulsory, they are highly recommended as costs can quickly escalate should anything go wrong. Most home insurance policies are invalidated if the property is let out.
WHAT COVER SHOULD YOU CONSIDER?
If you are a landlord then you will require landlord buildings insurance. This will cover your property against fire, floods, theft or vandalism and natural disasters. Landlord insurance should also offer property owners' liability insurance, which means you are covered if a tenant or visitor is injured on your property and claims against you. For example they may be electrocuted, or an unstable roof beam could fall and hit them. In addition, your landlord insurance policy should include Malicious Damage & Theft by Tenant cover, in case the tenant causes damage to the property.
Here are some of the add-ons you may wish to consider for your landlord insurance policy:
Rent guarantee insurance – This protects against a tenant failing to pay rent for whatever reason. Most insurers require the tenants to be referenced and credit checked before this cover can be purchased.
Landlord contents insurance – You may wish to include contents insurance to cover your own property within the house or flat. This would also cover white goods such as fridges and washing machines, as well as carpets and curtains, so you may wish to consider this cover even if the property to let is unfurnished. If the Buildings insurance is insured by a factor or freeholder, most Landlords Contents policies will include Property Owners Liability cover as standard cover.
Legal cover – Legal fees can become expensive should you get involved in a dispute with a tenant, neighbour or even a letting agent. Some landlord insurance policies include legal cover as standard. Others don't, so it's worth checking with your insurance provider.
Home emergency cover – Provides 24-hour assistance for emergencies, such as the boiler breaking down.
Alternative accommodation & Loss of Rent insurance – If the property becomes uninhabitable, it can be the landlord's responsibility to ensure the tenant has alternative accommodation until the problem is resolved. Loss of rent cover pays the landlord for any rent not paid due to an insured incident. Most policies allow an indemnity period of 12 months, but maybe more than a year before the property is habitable again, so consider extending this to 24 months as the additional cost is very small.
Glass replacement – Covers the costs if a window needs replaced.
Landlord portfolio insurance – For landlords who own more than one property, portfolio insurance allows you to insure several properties on the same insurance, which can make things simpler than taking out individual policies. Additional properties can be added mid-term with pro-rata premiums.
Terrorism cover - For landlord to cover their potential losses and liabilities that might occur due to terrorist activities.
REDUCING THE RISKS
Of course, nobody wants to have to make a claim on their insurance. There are a number of steps landlords can take to reduce the risk of something going wrong.
1. Conduct regular inspections to make sure the tenants are taking care of the property.
2. Vet all tenants prior to renting, to make sure they are who they claim to be, and to ensure the information they have provided to you is correct.
3. Water damage is one of the more common insurance claims for landlords. Carry out annual inspections of pipes to make sure joins are secure and pipes are properly insulated for winter.
4. Ensure tenants know where emergency stopcocks and shut off switches are located, and that they know how to use them.
5. Keep the roof maintained, and arrange to have gutters cleaned regularly.
6. Consider the design of the property to minimise accidental damage. A white carpet probably isn't a great idea; laminate flooring is much easier to keep clean.
7. Keep the property safe and secure by installing locks on gates and communal access doors. You may also want to consider installing burglar alarms or security system, and window locks.
8. Ensure smoke alarms are tested regularly, and provide a fire extinguisher/fire blanket in the kitchen. Ensure tenants know the location of fire exits and make them aware of what to do in an emergency situation.
9. Ensure you have the necessary insurance in place to protect your property.
Taking these steps can minimise the risk for your property investment. Making a claim is something landlords want to avoid, but should the worst case scenario happen, it's better to have peace of mind that any claims will be covered by your landlord insurance policy.
Here at the Insurance Knight Consultancy we have access to a large number of let property insurance providers, with many offering discounts for portfolios. We can also arrange cover for landlords renting out properties on Airbnb and holiday lets.
Please get in touch to discuss your landlord insurance requirements.