The above question is, without doubt, one of the commonest we at GSI Insurance hear from potential new clients, and they need advice on making the right decision regarding landlord insurance.

We’d like to highlight some of the main themes that differentiate between the above two types of property cover.

Similarities

At the outset, it may appear as though the two types of policy provide very similar or even near-identical forms of cover. Typically they will both provide cover for:

• perils that may put the structure of your property at risk;
• things that might destroy, damage or otherwise remove from your possession, the contents of your property (if you have opted for combined buildings and contents insurance);
• third party liability cover. This offers financial protection in the event that you are sued by someone for injuries they may have suffered, or loss of/damage to their property, as a result of your property;
• miscellaneous other elements of cover that may vary slightly from one policy to another but might include legal fees of certain types in specified circumstances etc.

If all of these sorts of things are broadly similar between the two types of policy, you may be wondering why two forms of cover actually need to exist? This leads us into a discussion of risk.

Risk and your protection

As an owner-occupier, your property will face certain types of risk and probabilities of risk. This is sometimes referred to as the property’s “risk profile”.

The risk profile is something that your insurance provider will typically use to form part of their assessment of the appropriate levels of cover for you and the premium you will need to pay.

The same is true for let properties owned by landlords. However, the risk profile of a property being used for the generation of rental income is significantly different to that associated typically with an owner-occupied property.

As a result, a different type of policy (landlord insurance) is needed in order to reflect the very different risk profile and policyholder protection required.

Why the risks are different

Typically, let properties may be at a much higher risk than owner-occupied ones in some of the following areas:

• third party liability exposures. Having tenants in a property and their visitors increases the likelihood of such claims;
• some tenants may not be quite as diligent as owner-occupiers in terms of spotting problems and arranging for them to be resolved before significant damage is incurred;
• landlords may require a higher degree of legal fee protection than might normally be the case with owner-occupiers;
• issues arising from internal damage to the property and contents may again be more substantial as a risk for landlords than for someone who is living in their own property.

This is only a very superficial description of how the risks differ and why that results in the need for specific landlord insurance.

The bottom line

It is important to take this opportunity to re-emphasize that once you start using a property for the purposes of income generation through rent, you must have appropriate landlord insurance (sometimes also called “let property insurance” – the terminology may vary slightly from one provider to another).

It is perfectly normal practice for an insurance provider to check the occupancy status of a property at the time an incident took place that subsequently led to a claim. They have very sophisticated methods at their disposal for doing so.

If you make a claim under owner-occupier cover and the insurance provider discovers that you were using a property for rental income purposes, your claim may be refused and it may be difficult to obtain property cover subsequently.

There may also be issues with any mortgage you have on the property, as well, if you don’t have the correct type of insurance, as this will typically be part of your mortgage contract.

If anything in the above overview is unclear, we would welcome your contact and be only too happy to clarify.