At first glance, they might appear to be so similar as to be identical. If you own a second home used as a holiday let for paying guests, it appears you play much the same role as any other landlord. But when it comes to insurance, the two are certainly not interchangeable.
So, if there is one, what is the difference between holiday let insurance and landlord insurance – and, crucially, which of them do you need?
The three key types of property usage
The key to understanding distinct types of insurance, of course, lies in the different insured risks. In the case of property insurance, those risks vary according to the way in which a property is used.
If you own a second home – property in addition to your principal residence – the potential uses fall into three broad categories:
Private second home
- your second home might be used as just that – a second home and one that you use as a retreat from the hustle and bustle of everyday life, for holidays, or for a break at the beach or in the countryside;
Holiday let (commercial rental)
- alternatively, you might have invested in a holiday home that you let to visiting holidaymakers (as well as possibly using yourself);
- when you let to visiting holidaymakers, these become short-term tenancies – typically counted in a matter of days or weeks – generating a commercial rent as you operate the holiday let as a business;
Standard long-term rental
- your third option is a so-called buy-to-let investment in which the property is let to tenants on a long-term basis, with you as the landlord.
Why each property type needs different insurance
It is worth spelling out these different uses, as they help to clarify some of the principal differences of holiday let (or second home insurance) vs landlord insurance.
Several factors come into play when comparing holiday home vs rental property insurance. These range from the different occupancy patterns and long-term tenancies of rental property, for example, to the much shorter-term tenancies of a holiday let. A holiday let, for instance, may carry seasonal risks that a long-term standard rental property does not.
Clearly, your liability as the owner of a second home changes if you and your family are the sole users compared to the liabilities you assume as the landlord of a holiday let.
What standard landlord insurance typically covers
Let’s see how insurers tackle these different risk factors by looking at what the respective policies may cover (also recognising the variations that exist between one insurer and another).
Standard landlord insurance for properties occupied under long-term tenancy agreements typically may include (or have options to include):
- protection against loss or damage to the structure and fabric of the building;
- any contents owned by the landlord;
- landlord liability indemnity insurance;
- cover for the loss of rental income following a major insured event that leaves the let property temporarily uninhabitable pending repairs and reinstatement.
What holiday let insurance typically covers and why it must be different
By way of contrast, holiday let insurance recognises the very short-term nature of the tenancies created for your paying guests.
Nevertheless, the building itself will still need to be insured against the risk of loss or damage, and, as a landlord – however short the tenancy – you may still be held liable for any injury or property damage sustained by your paying guests.
In recognition of your operating the holiday let in search of commercial rent returns, your insurance policy may also extend to compensation for any loss of rental income if an insured event leaves the property temporarily unusable and unlettable.
What second home insurance covers
The third option for using your second home is simply as a place just for you and your family for holidays and breaks away from your principal residence.
Second home insurance recognises this exclusive use of the property. As a second home used only by you and close family members, there are likely to be relatively long periods when the property stands empty and unoccupied. Holiday cottage insurance differences mean that the contents of the property may be tailored to the specific risks of occasional-use homes.
In this brief consideration of the major areas covered by the different types of insurance for a second home, it is important to stress that the specific features of any particular policy are likely to vary from one insurer to another.
Which policy do you need?
In practice, one of the most common areas of confusion arises when property owners assume that cover automatically adjusts as their use of the property evolves.
Insurance policies are based on declared risk information at the point of inception and renewal. If the nature of occupation, tenancy length, or income generation changes, this may represent a material change in risk which should be disclosed to your insurer promptly. Failure to do so could affect how a claim is assessed.
For example, a property insured purely as a second home may not be rated for the increased footfall, turnover of occupants, and commercial exposure associated with short-term holiday letting. Similarly, a holiday let policy may not be structured to reflect the regulatory and contractual framework of a long-term tenancy arrangement.
Your mortgage, contents cover and tax treatments
Mortgage lenders may also impose specific insurance requirements depending on whether the property is owner-occupied or operated as a furnished holiday let business.
Another consideration is the extent of contents cover required. A furnished holiday let may typically contain a higher volume of landlord-owned items, appliances, and guest-use furnishings than a standard long-term rental, where tenants often provide more of their own possessions. Accidental damage cover, theft risk, and malicious damage considerations may therefore differ in scope and pricing.
Tax treatment can also indirectly influence insurance decisions. While tax advice should always be sought independently, it is sensible to ensure that your insurance arrangements align with how the property is declared and operated commercially.
Finally, many local authorities are reviewing planning classifications and licensing requirements for short-term lets. Where mandatory registration or planning consent applies, insurers may expect confirmation that appropriate permissions are in place.
Keeping documentation organised and maintaining open communication with your broker or insurer can help avoid unintended gaps in cover.
Taking a proactive approach, reviewing your policy wording annually, and seeking professional advice where circumstances change can help ensure that your insurance continues to reflect your actual use of the property.
Navigating the many insurance products on offer and considering the different uses for any second home over a period of time, might leave you in something of a quandary when deciding which policy you need.
The simple reality is that, once you’ve bought your second home, you might use it for different purposes, switching from one to another throughout the year.
Although you might have invested in a second home for your family’s enjoyment, you might nevertheless decide to earn a little extra income by letting it to visiting holidaymakers when you’re not using it.
On the other hand, you might have invested in a second home with the sole purpose of running a commercial venture with rents from successive holiday lets (holiday let insurance). Depending on the market for those holiday lets, however, you might later decide to let what had been a holiday home to long-term tenants (landlord insurance). You might then switch between short- and long-term tenancies as market conditions dictate.
As with practically any property – but with second homes in particular – your use of the investment may be entirely fluid, depending on your personal preferences and economic circumstances.
It is important to understand that if your property use changes, you should inform your insurance provider and mortgage provider, and consider any other legal implications.
How to transition between policy types safely
To ensure appropriate protection of a second home in the way or ways you see fit, you may need to transition from one type of use to another – and, as we have seen, therefore, a switch from one type of policy to another.
It is important to recognise the fundamental differences between the broad insurance categories for a second home. But ensuring a smooth transition between those insurance policies may include notifying your insurer as and when you make a switch or indicate your intention for an essentially “mixed use” family, short-term, and long-term let.
Your insurer may advise specific conditions or restrictions relating to one use and another – including any adjustment in the price of the premiums you pay.
A key consideration with respect to any of the insurance types may be the length and frequency of unoccupancy periods – whether these are seasonal in the case of holiday lets, for example, or in response to market forces for landlord insurance.
Remember, too, when you are switching between different uses for your second home, that you also need to comply with local planning regulations and use classes with respect to the property. You may need to seek the relevant planning permissions well in advance.
This guide may have helped to highlight some of the essential – but critical – differences between second home insurance and landlord insurance. If you have further questions, however, or want help in finding the appropriate insurance at suitable terms, please contact one of our UK-based team on: 01702 606 301.They will be delighted to help.
Further reading: Guide to UK Holiday Homes.
Disclaimer
This article is intended for general information purposes only and does not constitute advice. The features, benefits and exclusions of insurance policies vary between insurers and individual circumstances. You should always review the full policy wording and discuss your specific requirements with a qualified insurance professional before arranging or amending cover.
