Taking out landlords’ insurance is not only a wise decision if you’ve got a property portfolio to protect; it may also be a legal necessity.
In this article, we look at some of the basics of landlords’ insurance for residential property.
Why take out landlords’ insurance?
For most homeowners, a house is the single biggest purchase they’ll ever make, and a mortgage the single greatest debt they’ll ever face.
If you’re a property investor, that still applies, but in addition your property represents your income, so if anything goes wrong, you need the peace of mind of knowing that you’re protected.
What does it protect?
There are a decent range of issues that can be protected using landlords’ insurance, but in principle it is there to protect you against financial loss if something happens to your property or your business relationship with your tenants.
As such, claims for fire damage can cover both the cost of repair work, and the lost income due to not being able to rent out the damaged property for a particular period.
Cover for legal expenses can also be obtained, and will pay the costs of chasing non-paying tenants for unpaid rent, and to evict them from your property.
How much does it pay?
Landlords’ insurance policies will designate a set amount – the Buildings Sum Insured, or BSI – from which any payouts for claims made against the policy will be calculated.
This should be an estimate of the cost of rebuilding the property, not the typical asking price for an equivalent house on the open market; rebuilding usually costs much less, and you should apply for your landlords’ insurance accordingly, rather than being tempted to overvalue the rebuild cost of your property.
Does my home insurance cover my rental property?
Landlords’ insurance is specifically intended to protect rental properties – and, conversely, ordinary home insurance policies are usually not meant for that purpose.
As such, you’ll need to make sure the insurance you take out is for a rental property, whether it’s buildings insurance alone, or includes and kind of cover for contents.
Of course, there’s nothing to stop your tenants taking out contents insurance of their own, and generally speaking it’s up to them to do so if they are concerned about the risk of fire or theft.
Do I need a policy for each property?
You should be able to arrange a single policy that protects all of your properties – and you may be able to save money this way, compared with taking out individual policies for each home.
How are my premiums calculated?
Landlords’ insurance premiums are calculated according to the risk of damage or of non-paying tenants – just as car insurance is based on past convictions, accidents and so on.
Your location and the BSI of your property are major factors, along with any former claims, the type and age of the property, and the type of tenants who are, or are expected to be, living there.
You may hear landlords’ insurance referred to as ‘buy-to-let insurance’ – literally cover for a property that you have bought in order to rent out, rather than to live in it.
A single policy can, again, cover several rental properties, and may incorporate multiple elements such as buildings insurance, content insurance and landlord’s liability protection.