In todays’ unstable market, becoming a landlord and acquiring buy-to-let property can seem like a reliable and safe investment.

The appeal of having your money invested in a tangible thing like a house is strong, but it also concentrates risk. If something happens to the property, your entire investment can be affected.

There are numerous calamities that can befall any property owner, and a few more that are specific to landlords in particular.

Landlords’ insurance, including landlords’ building insurance can cover these dangers, reducing the amount of risk your investment is exposed to.

01 | Why would I need insurance?

Insurance covers various risks, known as perils, up to a certain amount of money. This amount of money is known as the sum insured.

If one of the risks covered by the insurance policy occurs, the insurer will pay an amount up to the sum insured to repair or replace whatever is covered by the insurance policy.

Resident homeowners buy home insurance, which often covers perils like fire, theft, storms, and floods. Home insurance is divided into two main categories, buildings, and contents, which are often bought separately.

Building insurance covers the permanent and structural parts of the house, such as the walls, roof, windows, and bathroom while contents insurance covers of the items inside the building, such as electronics, furniture, clothes, and jewellery.

There may be some cases where building insurance is unnecessary. For example, if you own the lease to a flat, and the building’s freeholder has their own building insurance, your property could be covered under this.

Not all freeholders have a comprehensive building insurance policy however, so ensure that you double check your own circumstances.

02 | Is home insurance sufficient for landlords?

Regular home insurance is generally insufficient for landlords, as landlords are exposed to several perils that owner-occupiers are not.

Even if this were not the case, standard home buildings and contents insurance is unlikely to cover you if you are renting your house out and have tenants in place.

This is because the insurers view the risk of renters making a claim on the insurance as different to the owners. For example, a house full of students poses a greater claim risk to the insurer than a family who own their home.

However, you have lots of options as many companies offer specialist landlords insurance.

03 | What perils are landlords at risk of?

Landlords are at risk of several perils that do not affect owner occupiers.

Exposing the property to tenants can lead to nightmare situations including them:

• Damaging the property, either accidentally or maliciously
• Refusing to pay rent for months at a time
• Using the property as a base for illegal activity, including potentially drug production
• Squatting the property, and outright refusing to leave

In addition, disputes with tenants can result in substantial legal expenses. Even with perfect tenants, landlords are exposed to risks including potentially being liable for any injuries sustained on the property.

Therefore, specialist landlord insurance is advisable.

Elements which can often be provided by landlords’ insurance include legal cover, building cover, landlords’ contents cover, cover for loss of rent, cover for damage caused by tenants, cover for public liability, and cover for the eviction of squatters.

04 | The types of landlords’ insurance

Landlords’ insurance tends to be divided up into various categories, each of which covers a different thing.

A list of the various types of coverage has been included below. Ensure that your policy has all the types of coverage you feel are necessary to protect your investment.

• Landlord liability insurance covers landlords against the cost of compensating against injury to a tenant or visitor because of something going wrong with your property. This is important, as claims of this sort can be extremely expensive.
• Landlord building insurance covers damage caused to the building itself by potential perils including fire, flood, and vandalism.
• Landlord contents insurance covers the landlords’ possessions in the property, such as white goods and furniture, against theft and damage. It is worth noting that this policy does not protect your tenants’ possessions. You should inform them of this and advise them to consider taking out their own policy.
• Loss of rent insurance, also known as a rent guarantee, will ensure that you have an income if your property becomes uninhabitable because of an insured event. Note that this is not the same as tenant default insurance and does not cover tenants missing rent payments.
• Tenant default insurance can cover missing rent payments if tenants refuse to pay the rent. This type of insurance can be extremely helpful if you still have mortgage payments to make. Landlords in the past have found themselves in great financial difficulty due to ongoing mortgage costs and unpaying tenants, sometimes even being made homeless themselves.
• Accidental damage insurance covers you against accidents, including things like spilled wine on a carpet, or a DIY disaster. Depending on the protection, it can also cover accidents outside the property, such as smashed windows.
• Landlord home emergency insurance provides you with access to help with plumbing, drainage, heating, or power, as well as locksmiths and builders who can help if the property’s entrance is broken into or made insecure. This is often available on a 24-hour basis.
• Legal expense insurance can help fund legal expenses you can incur when dealing with problem tenants. This can include court costs associated with chasing down rent payments and eviction fees.

05 | Is landlords’ insurance obligatory?

It is not a legal requirement for someone renting out a property to have landlords’ insurance.

However, many lenders offering mortgages for buy-to-let properties require that their customers have landlords’ insurance in place before they agree to them renting out the property.

Given the risks that are posed by renting a house, it is almost always advisable to have at least some cover from landlords’ insurance.

06 | How does it work?

When you buy landlords insurance you will be asked questions about your property and what you want your policy to cover.

They will want to know how much the property needs to be insured for, what perils you want to be covered from, and what type of people you want to rent to.

The higher the insured sum and the more perils you want to be covered, the more you pay.

What type of people you rent to can also alter the cost of landlord’s insurance.

Generally, tenants are split into the following categories:

• Employees
• Students
• Those in receipt of housing benefit
• Unemployed
• Self Employed
• Asylum Seekers
• Retired
• And a mix of the above

This matters as some types of tenants cost a different amount to insure than others. Students, the unemployed and those in the receipt of housing benefit are more expensive as their low level of take-home pay makes them a bigger risk to insurers.

If you want your policy to cover non-payment of rent, housing these groups can lead to very high premiums.

While most insurers will cover most tenants, you must make clear who you are renting to as failure to do so can lead to your policy being invalidated.

07 | What does it cost?

The financial advice website Nimblefins has conducted research on the average price of landlords’ insurance.

They placed the average cost of a basic policy at approximately £170. Note that this is only building insurance— adding tenant default cover could add more than £100, while home emergency cover would cost a further £144, and accidental damage cover another £299.

In total, they calculated that a comprehensive package covering £5000 of landlord’s contents cover costs on average £1,043 per year.

Other things can also affect the cost of landlord’s insurance, including the estimated total cost to rebuild the property.

A property with a higher total rebuild cost has higher building insurance premiums. For example, a £150,000 rebuild cost property has an average annual premium of £137 compared to a £1,000,000 rebuild cost property, which would have an average annual premium of £420.

Older properties are also more expensive to insure, with building insurance on a property built before 1850 costing on average £26 more a year than on a property built after 2000.

Ways you can save money on landlord insurance include comparing the market for a range of quotes, paying annually instead of monthly, adding to your security arrangements and increasing the excess you will pay if you make a claim.

In Summary

Landlords’ insurance is an essential tool to ensure that a buy to let property doesn’t end up costing you more than it makes.

While the expensive premiums can dig into your profit margins, the risks posed by the potential of nightmare tenants, or a disastrous liability claim makes having comprehensive landlords’ insurance worthwhile.

Some landlords may find that their buy to let is not as good as an investment as they hoped after they consider these additional costs.

If you need to sell your property fast, with or without tenants in place, please contact one of our expert team at National Property Buyers.

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