To understand how you might get the most appropriate cover for your let property, it might be helpful to recap the difference between buy to let insurance and standard home insurance.
A home or a business proposition?
Quite simply, properties that have been bought to let are quite different to those occupied by their owner. By definition, the prime purpose of the property is to earn income from rents – and eventually to realise a capital gain in the value of the property if and when it is sold.
In the one case, therefore, the property serves as your home and principal place of residence, in the other it is effectively a business asset central to a buy to let enterprise.
You might get the first inkling of this distinction when raising a mortgage for the purchase of your buy to let property. The Council of Mortgage Lenders (CML), for instance, describes the essential difference between an owner occupier’s mortgage and a buy to let mortgage, stressing that the latter is advanced solely on the anticipated return from rental income.
Even if you are what is widely known as an “accidental landlord” and have no mortgage to service, very similar considerations apply.
The distinction in the use of the property carries over into the type of insurance that is needed.
If the property is going to be occupied by tenants and you are earning an income from the rent they pay, purpose designed landlord or buy to let insurance is required. Not only is standard home insurance insufficient, but if you rely upon it for a let property, any claim may be rejected by your insurer.
In recognition of this critical distinction, here at Cover4LetProperty we have developed a special expertise in the provision of the insurance needed by landlords.
Making the most of the landlord’s insurance you buy
When arranging any kind of insurance, the most critical consideration is securing the cover you actually need, given your particular circumstances and requirements. Just as it is important to get the cover you need, it is equally important to avoid paying for cover that you do not need – paying too much for your landlord insurance ultimately affects the bottom line of your buy to let business by unnecessarily inflating your operating costs.
The appropriate cover, therefore, is the insurance that delivers the protection demanded by your individual circumstances as a landlord – at a competitively rated price:
- central to your buy to let business, of course, is the property itself;
- this needs to reflect a worst case scenario in which the building is completely destroyed, a total loss, and needs to be rebuilt from the ground up;
- reconstruction costs are clearly quite different to the price you may have paid for the property or even its current market value – a helpful calculator for computing changes in rebuilding costs is published by the Royal Institute of Chartered Surveyors (RICS);
- there may be considerable variation in the amount and value of landlord-owned contents in any let property;
- the total contents sum insured clearly needs to reflect these values accurately if you are to find the most appropriate cover for your let property;
- it is a sad reflection on the type of business you may be in, but some tenants may be guilty of causing malicious damage either to the building itself or to the contents you own;
- relatively few insurers extend cover to include the risk of malicious damage, so you might want to single out those policies which do (the good news is that we do offer this cover as standard);
- public liability cover, property owners’ liability or landlord’s liability indemnity is especially important in the case of let property;
- if one of your tenants, one of their visitors, or a member of the public suffers an injury or has their property damaged, they may hold you liable as the property owner;
- claims of this nature may be very substantial indeed and if you want the most appropriate cover for your let property, it is by no means unusual to seek cover for at least £1 million;
Loss of rental income
- as a landlord, you are running a business;
- if your let property becomes uninhabitable following a major insured event, the rents which form your business income stream are disrupted;
- landlord insurance, therefore, typically offers an element of compensation for any such loss of rental income;
- the business you are running might involve not just one, but a whole portfolio of investment properties which you are letting to tenants;
- in that case, you might want to consider whether the more appropriate form of insurance is one that extends protection to your entire portfolio, rather than cover for each residential unit separately;
- with an umbrella policy such as this – covering your entire portfolio of properties – you are likely to enjoy substantial discounts on your overall insurance premiums.
Getting the most appropriate insurance cover for your let property is therefore worth more than a second thought and something which you might prefer to entrust to a specialist insurance provider.