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.
When you arrange building and contents insurance for the home in which you are living, your insurer knows that you are the owner-occupier – and the risks associated with providing the cover requested are calculated on that basis.
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. This is where landlords insurance is typically required.
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 – from a property in which you live to one that you let to tenants – also means that any standard home buildings 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.
In a nutshell, any existing regular form of home building and contents insurance is unlikely to provide the cover you need.
That difference in use is critical to mortgage lenders – with the Council of Mortgage Lenders explaining how buy to let mortgages are quite different to standard residential mortgages for owner-occupiers.
That difference is just as critical to insurers. So much so, in fact, that any standard home insurance you might have arranged to safeguard your home and its contents when you lived there as the owner-occupier, is likely to be invalidated the moment it is occupied by tenants – hence the need for purpose-designed landlord insurance.
One of the fundamental conditions of your buy to let mortgage is almost certain to be the requirement for sufficient buildings insurance always to be in place to at least cover the outstanding balance of your mortgage.
What does landlords insurance cover?
Whether your buy to let property is the focus of a concerted business undertaking or whether you have fallen into the role as a more or less “accidental landlord”, the moment tenants are paying to rent your dwelling, you still want to know just what is covered by your landlord insurance.
Although the nature and extent of the landlord insurance cover may vary from one policy to another, the standard forms of landlord insurance typically provide protection – or the option to add on elements of cover – under the following broad headings:
- In common with other forms of property insurance, the principal objective of a landlord insurance policy is to safeguard the structure and fabric of 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;
- since most landlords are likely to own at least some of the contents of the let property, the insurance policy may also provide cover against loss or damage of such items;
- 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
- where let property insurance offers an especially important element of protection is in so-called 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;
- landlord liability indemnity insurance offers indemnity against claims which may be made by tenants, their visitors, neighbours or members of the public who have been injured or had their own property damaged through some contact with the let property, for which they hold you, the landlord, liable;
- 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 £2 million of cover. With our landlord insurance cover, there are also options to increase this element of protection up £5 million worth of cover;
Compensation for loss of rental income
- your buy to let property is a principal business asset – from which the income stream is generated by the rent you collect 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;
- some landlord insurance policies typically offer compensation for the loss of rental income (up to prescribed limits, typically calculated according to the total sum insured under your policy) in the event of the property becoming uninhabitable – and therefore unlettable – following a major insured event. This is known as loss of rent insurance;
- it is important to note that not all landlord insurance cover includes loss of rent cover as standard.
Quick summary of insurance for landlords
Landlord insurance may not be a legal requirement (though it may be a condition of any buy to let mortgage 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.
In brief summary, therefore, here are the key benefits of arranging landlord insurance:
- the risks you face as a landlord are simply different to those of an owner-occupier – for example, you have tenants and that may bring a range of risks and issues that typically will not apply to an owner-occupier;
- your property is also a business concern, even if you also live in it yourself – that means that, in effect, you still require a form of commercial landlord insurance;
- as a result, you are asking the insurance provider to deal with an entirely different set of risk circumstances, and they need to provide policies that will cover those risks for you;
- therefore, it is illogical to expect a landlord insurance policy to be broadly the same as an owner-occupier policy and sold at the same price;
- note that the moment you rent out even a part of your existing home, any standard owner-occupier policy you have in place typically becomes invalid – something well worth bearing in mind even if you rent out a room or two during the holiday season;
- keep in mind also that if your property stands unoccupied for more than 30-45 consecutive days, then any standard landlord’s insurance or even owner-occupier home insurance may become invalid and you will need to consider unoccupied property insurance;
- unoccupied property insurance (also known as vacant property insurance) is one area where the position for landlords and owner-occupiers may be identical, as a similar condition may apply in a standard owner-occupier policy;
- if you are still tempted to try and make do with owner-occupier cover, remember that insurers have ways of checking the occupancy status of any property where an insurance claim has arisen – making a false declaration may not only lead to your claim being refused but you may find it difficult to obtain insurance in future (it may also, in some circumstances, be an offence);
- so, it may pay to think carefully about a landlord insurance policy and to avoid dismissing it as unnecessary!
There is a compelling argument, therefore, for arranging suitable landlord insurance from the moment you begin letting any property to tenants.