Landlord insurance guide
Anyone who rents out a property should take out insurance cover in case something goes wrong. It sounds pessimistic, but it’s actually just common – and financial – sense.
What if there was a flood at the property? Could you afford to repair the damage and find alternative accommodation for your tenant out of your ready resources? Or what if your tenant failed to pay the rent? If you rely on the rental income to meet the mortgage payments, you could end up in a serious financial mess if the rent isn’t forthcoming, for whatever reason.
Keep up to date
Landlords need insurance designed for landlords. If you let a property but just take out standard insurance in your own name, there’s every chance the insurance company will refuse to pay any claim and you will be out of pocket.
You should also keep the insurer up to date with any changes, including a change of tenants and any ‘void’ periods when the property is empty. This is crucial as insurers will not normally provide cover if a property lies empty for more than 30 days at any one time, unless by notified arrangement.
Specialist cover for landlords
Many firms offer specialist landlord insurance, including household name insurance providers. The extent of the cover and the premiums vary, so it’s important to compare policies carefully to make sure you get a good deal, bearing in mind that the cheapest is not always the best.
A decent policy will insure the building, your liability and loss of rent. You can also typically add contents cover, home emergency, legal expenses and rent guarantee insurance.
Property is a valuable asset so you would be crazy not to take out buildings insurance in case the structure of the building, plus any fixtures and fittings, were damaged by a range of risks including fire, flood and storm. In fact, your bank or building society might insist on appropriate buildings insurance as a condition of the mortgage.
In fact, there’s a good chance your lender will offer you insurance, but you are not obliged to take it from them. You’re much more likely to get a competitive deal if you shop around using a price comparison service.
Check the sum insured, which is the maximum you can claim if the property is completely destroyed. If the sum insured is too small, you risk an insurance shortfall in the event of a claim. If it’s too big, you could pay over the odds for cover.
Remember that the sum assured should reflect the rebuild cost of the home, not its market value. You can arrange for a professional to assess the rebuild cost, or your insurer can make an estimate based on a number of factors including the age and type of the property.
Some policies offer unlimited cover, so you don’t need to worry about calculating an accurate rebuild value.
Buildings insurance often covers malicious damage by a tenant, just in case a disgruntled renter decides to kick the door in. Many insurers also offer glass, lock and key replacement cover as standard.
Contents insurance is a must if you let a furnished property. You can normally select an appropriate sum insured based on the value of the contents. Make sure you insure your belongings in a new-for-old basis and think about adding accidental damage cover.
Landlords should consider contents cover even if they let the accommodation unfurnished. You might, for example, provide curtains, light fittings and kitchen appliances in an unfurnished property, so a small amount of cover would offer peace of mind. Don’t include the tenant’s contents in any of your calculations as the tenant is responsible for insuring his or her own possessions.
Loss of rent
It’s a good idea to choose a landlord insurance policy that covers loss of rent. You could then make a claim if the property was uninhabitable after damage from, say, a fire or flood. Loss of rent insurance is particularly important if you have a big mortgage on your property and rely on the rental income to meet the monthly payments, though you should check the limit on any payout to see it matches your requirements.
Some policies also cover the cost of alternative accommodation for your tenants if they have to move out of the property, though again there is a limit to the maximum claim.
How would you cope if the boiler broke down or a pipe burst and flooded the rental property? Home emergency cover gives you access to a 24-hour helpline so you can arrange for emergency repairs to be carried out by suitably qualified tradesmen.
If you do not employ a managing agent, home emergency cover can be invaluable. You should, however, read the details carefully and be clear that home emergency insurance is not a substitute for property maintenance.
Tenants these days are increasingly litigious, so you should be aware of your legal liabilities. If, for example, a tenant was injured by faulty wiring or tripped over a broken floor tile, they could sue for damages. You could also be in trouble if you damaged another person’s property or an employee was involved in an accident while working at the rented accommodation. Damage claims can be costly, but most landlord insurance policies offer liability cover up to £2m, just in case you end up in court.
As any landlord will tell you, tenants don’t always pay their rent. You have a right to evict a tenant for non payment of rent, but you have to follow the correct legal procedure, which can be both lengthy and costly. Meanwhile, you are losing money.
Rent guarantee insurance will cover the rent up to a certain amount over an agreed period – and it can offer a financial lifeline to landlords. It also usually includes legal expenses insurance, so you don’t have to worry about the legal costs if you are in a dispute of any kind with your tenant.
West London Property Networking
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