If you are a landlord, you almost certainly want to protect your buy to let investment with the appropriate level of insurance. The economics of running a successful buy to let business are on a fine edge, however, and you need to make sure that you secure the most competitively priced landlord insurance cover.
So, how do insurers calculate the price of the premiums you need to pay for the cover you receive?
The cost of insurance
The cost of any kind of general insurance – in other words, the price of the premiums – is calculated by the insurer in terms of the estimated costs of paying out on claims. Premiums charged are designed to cover the cost of meeting claims.
This is as true of landlord insurance policies as any other.
Small claims are typically subject to special consideration by insurers, since:
- a small claim requires just as much administrative effort on the part of the insurer as a major claim – dealing with small claims therefore involves disproportionate costs for the insurer and risks increasing the price of premiums that need to be charged;
- one way of discouraging smaller claims is for the insurer to impose an excess – effectively leaving some proportion of the risks uninsured, explains the Citizens’ Advice Bureau;
- not only does the existence of an excess mean that the insured is sharing responsibility for mitigating the risks of loss or damage, but it also allows the insurer to lower the overall price of premiums – and in so doing, make your premium more attractively-priced.
Making a small claim will also typically attract an excess – which you will be liable for.
Here at Cover4LetProperty, however, we have recently warned that it is not only the payment of any excess on your claim that may cost you dear. There are at least two reasons why this might be the case:
- when insurers are calculating the risks of your making a claim on any policy – that is to say, the basis on which they are also calculating the price of the premiums you need to pay – they typically take into account your record of previous claims;
- even when those claims are small, they appear on your record and are considered by insurers to increase the chances of your making further claims in the future;
- the effect, therefore, is for the insurer to charge you a higher premium in view of the assessed risk of your making further claims;
No claims discount
- even a small claim also counts against any no claims discount you may have been building up with your insurer;
- no claims discounts represent one of the main ways in which landlords help to control the cost of the insurance they need and the value, in terms of lower premiums, makes the maximum no claims discount something to be prized and safeguarded;
- certainly, with our policies, we typically include a 20% discount based on there being no previous claims. If you do make a claim, however small, you may typically lose your 20% discount – meaning you landlord insurance cover will cost you more.
If you are thinking about making a small claim on your landlord insurance, therefore, you might want to speak to us first so we can advise as to the next steps.