If you are a homeowner, you are probably aware of the importance of building and contents insurance to safeguard against the risks of serious loss or damage to both the structure and fabric of your home and its contents.
If you decide to let that property to tenants, however, there is a fundamental change in the entire basis on which the property is used – rather than the home in which you live, it becomes a business proposition in which you generate income from the rents you charge tenants.
That is true whether you are a full-time landlord making your entire livelihood from let property or a so-called “accidental landlord” after finding yourself with a property in which you decided not to live.
That fundamental change of use also means that any standard home insurance policy is no longer likely to be valid and you must instead arrange purpose-designed landlord insurance – or buy to let insurance as it is also known. As the Money Saving Expert warns, any existing regular form of home building and contents insurance is unlikely to provide the cover you need.
We have published a Beginners Guide to becoming a landlord, and this helps to explain all that is covered by landlord insurance – essentially, all that you might find in home building and contents insurance, and then some:
- landlord insurance typically provides cover to protect the very structure and fabric of your investment, the building itself;
- there are usually many risks covered, including storm damage, flooding, fire, escape of water, impacts (from vehicles and falling objects such as trees and branches), theft, and vandalism;
- the total sum insured needs to be sufficient to cover the estimated cost of clearing the site and rebuilding the property from scratch, following the worst case scenario in which a severe incident has totally destroyed the let premises;
Contents insurance (if required)
- any contents you own within the let property may also be covered against loss or damage;
- the contents may be limited to items such as furniture and furnishings in common areas or include all the landlord’s contents in a furnished let – your contents insurance may be adjusted accordingly;
- cover for your tenants’ possessions typically needs to be arranged by themselves;
Landlord liability insurance
- as the landlord you have a duty of care towards your tenants – if one of them, a visitor to the let premises, a neighbour or a member of the public suffers an injury or has their property damaged in some connection with the property, you may be sued for compensation;
- claims such as this may assume substantial proportions – especially if physical injuries are concerned – and the liability insurance incorporated into landlord insurance typically provides at least £1 million of cover;
Compensation for loss of rental income
- the business you are running as a landlord depends on your receipt of rents from tenants;
- if a major insured event occurs and the property becomes temporarily uninhabitable, you stand to lose that rental income until the completion of the necessary repairs and reinstatement;
- landlord insurance, therefore, may offer compensation for that loss of rental income – up to prescribed amounts, typically limited to a percentage of the total sum insured.
Landlord insurance may not be a legal requirement (though it may be a conditton of any buy to let mortgagge you have on the property), but without it, you run the risk of financial losses at least equivalent to the value of your investment in the property. Plus, typically, a failure of your buy to let business, and the possibility of personal liability for any breach of your duty of care as a landlord or property owner.