The ins and outs of landlord insurance
If you’re a landlord, your rental property (or properties) is likely to be one of your most significant assets. Even if you don’t rely on its income to supplement your own living costs, it’s a valuable capital asset that, at some point, you or your heirs will sell. Although not a legal requirement, landlord insurance is an essential part of safeguarding that asset and of ensuring that its eventual sale dovetails with (or even exceeds) the average sold property prices of the time. Never try to rely on a standard home insurance policy: renting out a property will invalidate the policy and so thwart any attempts to claim on it.
What should your insurance cover?
Landlord insurance policies cover a number of heads. Ten of the most common are outlined below.
1. The building itself. This covers you from damage caused by events such as fire, flood (although check for exemptions), lightning, earthquakes, explosions, and aircraft impact. Some leaseholders will not need buildings insurance if it’s the freeholder’s responsibility. If this is the case, it should be detailed in the terms of your lease.
2. Contents. This covers you against loss of or damage to your possessions in the property. It only needs to cover those contents that belong to you—and in an unfurnished property, this may be little more than fitted kitchens and bathrooms, carpets, curtains, and perhaps white goods. The tenant is responsible for taking out contents’ insurance to cover their own belongings.
3. Property owners’ liability. This element protects you against claims brought by anyone who has suffered damage or injury at the property.
4. Employer’s liability. This protects you against claims brought by anyone you employ at the property who suffer damage or injury as a result of your negligence.
5. Accidental damage. This covers you against the cost of repairing unintentional damage done to the property or its contents by a tenant.
6. Malicious damage. This covers you against the cost of repairing malicious (i.e. deliberate) damage done to the property or its contents by a tenant. This is often an extra that you will need to request (and pay more for) in order to add it to the policy.
7. Alternative accommodation. This covers you for the cost of paying for alternative accommodation for your tenants if they need to move elsewhere temporarily as a result of damage to the property or its contents.
8. Rent guarantee insurance. This covers you for unexpected void periods when your tenants either cannot or will not pay their rent. Most rent guarantee insurance provides cover for a period of either six or twelve months.
9. Legal expenses. This can cover you for legal costs connected to the property, such as those concerned with evicting a troublesome tenant, helping you recover rent arrears or ensuring you can fund a defence against a prosecution arising out of your letting out of the property.
10. Boiler cover. Sometimes a feature of buildings insurance, you can also buy boiler cover separately. Occasionally tenants want to have the reassurance of taking out their own boiler cover so you may want to discuss the issue with them.
Given the different possible permutations of landlord insurance policies, finding the right policy can be trickier than it is for owner-occupiers. This is where a good broker can really come into their own, giving you access to a variety of insurance providers and their policies to allow you to compare what’s available. More fundamentally, a broker can also help you identify what you want and need from your policy.
Tips for reducing the cost of your landlord insurance policy
Previous claim history is one of the most significant elements in the calculation of your premium. While you can’t alter this, you can take several other steps to try and reduce the cost of your policy.
1. Shop around for the most competitive quote.
2. Ensure your chosen policy only includes necessary potential heads of claim.
3. Keep your property in good repair. It’s then less likely to result in a claim, and this, in turn, should help keep your premiums lower.
4. Install appropriate security measures, such as suitable locks for doors and windows, and a burglar alarm.
5. If you have multiple properties, you may be able to secure a discount if you insure them on the same policy. However, don’t assume that this will be the case; sometimes taking out separate policies for each property can be cheaper.
As with any type of insurance, it’s best not to accept your annual renewal figure without checking if you can get a better deal elsewhere. While most premiums increase annually, particularly after the first year, if yours increases significantly, ask your provider why. Equally, if you’re been offered a more competitive premium elsewhere, tell your current provider before you accept the new quote. Your existing provider may agree to reduce your premium in order to retain your business.
Other tips to safeguard your investment
1. Choose your letting agency wisely. Personal recommendations are often best. However, if this isn’t possible, do your due diligence carefully. Check how each agency advertises for tenants, conducts viewings and background checks, and how frequently they inspect properties and report back on their inspection findings. Find out whether they offer a rent guarantee and, crucially, how much they will charge you for their services. Some issues are more a matter of preference: for example, some landlords prefer small agencies for a more personal touch for both landlord and tenant, while others are more comfortable with larger agencies. Whichever type you choose, remember that ultimate responsibility for the property, and the safety of the tenants who live there, lies with you.
2. Keep on top of maintenance and decoration. The end of a tenancy is the ideal time to conduct such work, but won’t always be possible. Knowing how you’ll respond to an emergency, such as a broken boiler or a leaking pipe, is very important if you are to keep your tenant happy (and the rent coming in) as well as safeguard your asset and ensure that it keeps pace with sold property prices in the area. Bear in mind, too, that your insurance policy is highly unlikely to cover you for problems resulting from skimping on, or overlooking, necessary property maintenance.