Fire, flood or misbehaving tenants - there are so many reasons why landlord insurance is important, if only to protect your sanity, your asset and your wallet. If the income from the property is needed to cover a mortgage, then having a plan in place should the tenant fail to make their payments could make the difference between a mishap and a disaster.
Your Property Is Valuable And Lenders Require It
So you need to make sure that it is covered. This means the structure, together with fittings and fixtures. Storms, electrical accidents and water damage can occur at any time. With many building societies or banks, appropriate building cover may be a condition of obtaining a mortgage1. Whilst insurance may be offered by your lender, it is not mandatory to take it and a better deal may be found by shopping around.
Ordinary Insurance Isn't Good Enough
Ordinary insurance in your name may not cover all the bases when it really needs to. A report from The Telegraph states that specialist landlords insurance is a must for property investors. Cover and premiums can vary a great deal, and the right type of policy should cover the building, any loss of income if the rent ceases, and any liabilities. Other items can be added to the policy, such as a rental income guarantee, or cover for the building's contents. Again shopping around is a good idea, but beware of a bargain from an unknown provider: it may not deliver.
Check The Small Print
With landlords' insurance, the important figure is how much the building is insured for; in other words the largest amount that can be claimed should the building be destroyed2. This figure should cover the cost of rebuilding, not what it is worth right now. At the risk of stating the obvious, if it's not sufficiently insured, then you could run out of funds in the event of disaster. However, you need to avoid over-insuring. Obtaining excessive cover will needlessly inflate the cost of the policy. Get the property expertly valued, or even source a policy with unlimited cover that will take care of all eventualities.
Disaster Compounded By Loss Of Income
A policy that covers loss of rent can bring peace of mind, particularly if the mortgage is large and regular payments are required. If the structure is uninhabitable following a disaster such as a fire, landlords insurance could cover the loss of income3. Some insurance also covers the cost of providing alternative accommodation for your tenants if they are forced to vacate4. It is worth checking the fine print for any exclusions and limitations as to time scales.
Make No Assumptions
Stay on top of developments, and keep your insurer up to date with any material changes, such as empty periods when the rental cover may not apply. Some landlords’ insurance policies don't cover properties when they are empty. Notify your insurer when tenants change, and of any other significant events. Reading the really, really fine print can be a bit of a bore, but it's so important to ensure that your insurance will deliver when you need it most. Situations you've never considered could invalidate it. For example, according to this report from The Guardian (https://www.theguardian.com/money/2009/feb/01/home-insurance-family-finance-criminal) a tenant with even a minor criminal conviction could destroy a claim.
All Shook Up
It's possible that a tenant may, for a variety of unforeseen reasons, wilfully destroy parts of your property. Having cover in place when someone breaks all the windows and doors could save you a great deal of time and expense. Some policies also extend to replacing locks, keys and glass.
Then There's The Furniture …
Unless you are providing unfurnished accommodation, contents insurance is essential. However, this requires an accurate assessment of the value of your goods and what it would cost to replace them. Even unfurnished properties will still contain valuable items such as appliances, window dressings and lighting. Cover for accidental damage could be a useful add-on.
There are a number of potential liabilities associated with renting out a property. Tenants are increasingly well-informed as to their rights and it could be prohibitively expensive if one of them breaks a leg tripping over a broken stair or is electrocuted by sub-standard wiring. Or there could be an accident when someone is working at the property. Claims for damages can soon run into hundreds of thousands of pounds, but the appropriate landlords' insurance should offer cover up to £2 million5.
Although you no doubt take every precaution in screening potential tenants, they may not pay the rent. Whilst they can be evicted, following the lengthy legal procedures is expensive and time-consuming. Meanwhile, you continue to lose money. Landlords insurance that includes a guarantee of rental payments can cover you for this eventuality. In most cases, it covers you for an agreed time frame which will not only provide cash in the short term, but will provide you with some breathing space to sort out the issues and find a new tenant. This type of cover can also extend to legal fees; a major benefit if the process becomes complex or protracted.
The boiler explodes, a pipe bursts and devastation of Biblical proportions is unleashed on your property. In these scenarios, appropriate cover can make the difference between survival and bankruptcy. Some providers also include round-the-clock access to advice and repairs from trustworthy tradespeople. This is especially useful if you are not using a managing agent. Cover could cost you less than paying an agent, although remember that you will remain responsible for monitoring general repairs and maintenance.
For a landlord in today's climate, the right kind of insurance is not just a luxury, it's an imperative.
1 Uswitch.com Buy To Let Buildings Insurance For Landlords
2 Simplybusiness.co.uk How Much Landlord Insurance Do I Need?
3 Directlineforbusiness.co.uk Loss of Rental Income
4 Simplybusiness.co.uk Alternative Accommodation Insurance
5 Towergateinsurance.co.uk Guide To Commercial Property Insurance