Landlords Insurance and Buy to Let Insurance -What You need to Know

Letting out a property involves a higher insurance risk than is the case with a standard domestic (i.e. non–let) property. Policies vary greatly in terms of cost and the level of cover provided, so it’s important to check what’s covered in some detail and to carefully compare policies.
Firstly, a few obvious things! Before taking ownership you must arrange to have the buildings insured. If you’re getting a mortgage, your lender should insist that a suitable policy is in place, and will ask to see proof of the policy and be noted as an “interested party.” For flats, the insurance will normally be arranged by the freeholder.
The more specialist buy-to-let mortgage companies and most of the landlords’ associations have specialist home insurance policies designed with the landlord in mind. Members of landlord associations like the National Landlords Association and the Residential Landlords Association may also expect to get a discount of 10-20% on the premiums.
Some letting agents and most insurance brokers also offer cover and internet will show up a list of insurance companies that can provide insurance for let properties.
In my experience I’ve found the cheapest and best specialist landlords insurance comes from commercial brokers. Typically I have found that the premiums from the likes of Alan Boswell are about 15% cheaper than the standard policy available from mortgage lenders. http://www.alanboswell.com/landlords_insurance/
So, don’t ever just accept the mortgage lender’s policy, shop around.
If you are only providing a limited amount of furnishings and don’t want to go to the expense of getting a separate standalone contents policy, get a buildings insurance policy that include just a small amount of contents cover.
Key components of landlords cover should include cover for loss of rent, temporary accommodation and storage of furniture following fire or water damage. Usually these things will be included, but it’s worth checking anyway. Your cover should also include public and employers liability up to at least £5m. This is essential and is normally included as standard even in domestic home insurance policies. But, again, check that it’s covered because even if you just pay a friend to do a job for you, they will become an employee in law!
I also like those with a 24-7 emergency assistance feature, especially one which covers the cost of a call out to deal with an emergency. If you aren’t handy yourself or live in an area with expensive plumbers and the like, these can be really worth getting because the insurer will send out their emergency tradesmen to do an initial fix, sometimes with the cost covered (up to a certain amount.)
This will also save you having to buy a separate emergency cover policy. Ask about service standards - i.e. how quickly they will be on site to do the fix - because if say, you have a flood, you want the problem dealt with that day, not next week!
Spend time checking the policy exclusions too. In particular look out for policies that don’t cover students, people on housing benefit, asylum seekers, short term lets or properties let to social landlords such as housing associations or local councils. Be aware that most policies will insist the property is let on an assured short hold tenancy.
Your tenancy contract must insist that tenants tell you if a property will be unoccupied for more than a short period - typically up to 14 days – because most insurers will insist on being told and will throw claims out if the property has been unoccupied without them being told.. Your tenants should also be told how to turn off the water and gas in an emergency and how to drain down the water when away for a long time.
In general, where the insurer perceives the risk is higher, they will often still cover it, but charge a higher premium, insist on a higher excess or exclude certain risks altogether.
Unfortunately, malicious damage by tenants is usually not covered, even under special landlords’ buy to let policies. So even if you end up hating the tenants, don’t do anything that may lead them to trash the property as you won’t be able to recover the money from your insurer!
Nervous first time landlords with big mortgages to pay, might like to consider a rent guarantee policy which will pay rent if the tenant defaults. Typically they cost about 3-4% of the rent and pay for up to 12 months, although they usually don’t kick in until 2 months rent has been missed, and they require you to take certain steps before a claim will be entertained. One of these will be to hand over the eviction process to the insurer’s lawyers. If you buy a rent guarantee policy, check whether it also covers the cost of legal expenses to evict the tenant.
Deductibles (or excesses) on a specialist landlord policy vary from about £100 to £250 for normal claims though it’s normally £1,000 for subsidence claims. Landlords with flats should bear in mind that block buildings policies tend to have higher standard excesses ranging from £250 to £500 with no contents cover extension at all, so your carpets and curtains will be at risk if you don’t have separate cover. If you have a flat, it’s always worth asking to see the block policy document and schedule to check what you are covered for.
Tenants should be told that you, as their landlord, are not responsible for any accidental damage that they do, nor for damage to their own possessions whatever the cause. I always make this clear in writing and advise my tenants to take out contents cover for their own possessions and ensure their policy includes accidental damage cover too.
Most domestic insurance policies do not cover rented property at all so if the property used to be your home, tell your insurer the property is being let and ask if they provide a suitable specialist landlord policy. If they can, check it against cover from other providers too.
If and when you make a claim, keep a record of the amount of the date of claim and how much it was for. When you take out new insurance, the insurer will ask for information on previous claims so it’s good to have this info to hand.
Most home insurance policies won’t pay for replacement taps, toilets or boilers, though they usually pay for “trace and access” to find the source of a leak. So, if your plumber or boiler repairer is doing a job which involves tracing the source of a leak, it’s worth asking him to “trace and access” on his invoice.
Keep your tenant informed and involved. They should give you access to fix things, but don’t enter without their consent, except in an emergency. If they have to move out whilst things are being redecorated, reimburse them the rent for that period, then reclaim the cost from your insurance company. Finally, keep a record of all quotes obtained and of all correspondence - written or verbal - with your insurance company.
Copyright: David Lawrenson 2007. This blog is updated about three times a week.
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