To begin to answer this question it might be helpful to look at the use to which two different types of property are put:
- a home is where you live – you might be an owner occupier or you might be a tenant;
- if you own the property, you are likely to arrange home insurance to cover both the structure and fabric of the building itself and of the contents you own;
- if you are a tenant, the landlord is typically responsible for insuring the building, but you are still likely to need content insurance to protect your own belongings;
- let property is owned by a landlord as a business proposition – the dwelling is occupied by tenants who pay the landlord rent for the privilege;
- the landlord is likely to want to protect his business investment with landlord insurance, including safeguards against loss or damage to the building and any contents he owns; whilst
- tenants remain responsible for any insurance cover of their own possessions.
At its simplest, therefore, a home is a home, whilst let property is a business asset.
So why is the one more expensive than the other?
To understand why landlord insurance is typically more expensive than standard home insurance, it might be helpful to go back to the basics of insurance itself.
Essentially, insurance is about risk and a calculation of the probability of loss or damage being suffered by the insured item or items. Risk is assessed with respect to the likelihood of loss or damage leading the insured to make a claim, since the settlement of claims paid out to the insured represent a liability for the insurer.
In order to cover the financial liability of having to settle customers’ claims, the insurer charges premiums that reflect the assessed risk of having to pay out in the settlement of a claim.
How it works
A comparison of the ways in which home insurance and landlord insurance might throw further light on the matter – or you might want to consult specialist providers, such as Cover4LetProperty, for the professionals’ view:
- homes are vulnerable to loss or damage as a result of a variety of perils – fire, flooding, impacts, storm damage and vandalism, for example, to name but a few;
- these and other perils are typically included in building insurance, with the structure itself usually insured up to the cost of completely reconstructing it in the event of a major incident – and where building costs may be entirely different to the price at which the property was purchased;
- contents insurance also covers theft and may include the risk of accidental damage, with claims settled either on the basis of new for old replacement or after the deduction of an amount for depreciation or normal wear and tear;
- home owners have a duty of care towards members of the public, neighbours and visitors and for that reason home insurance typically includes indemnity against property owner’s liability claims;
- at first sight it may seem that landlord insurance is designed to cover effectively the same risks;
- whilst it is true that the core element of landlord insurance is also likely to be protection of the structure and fabric of the building, the risks are of a different nature and order if the occupants are tenants rather than owner occupiers – and the insurer’s calculation of this difference is reflected in the higher premiums likely to be attracted to insurance for landlords;
- similarly with contents insurance, where insurers take the general view that an owner occupier is more likely to take care of and prevent loss or damage to the contents of a property than some tenants – the risks are assessed to be higher and this is reflected in the price of the premiums;
- property owner’s liability in the case of a landlord is even more critical that in the case of the owner occupier – the landlord has an additional duty of care to take all reasonable steps to prevent injury to or loss or damage to the property of his tenants;
- furthermore, since let property is at the heart of a business enterprise driven by income from rents, landlord insurance typically covers the risk of interruption of that income stream in the event of a major insured incident which leaves the property temporarily uninhabitable.
It may be seen, therefore, that there are notable key differences between home insurance and landlord insurance, with the latter attracting a higher degree of risk – and along with those, higher premiums too.