There are three main generic reasons why landlord insurance is important when you are letting property and obtaining rental income from doing so:
- to protect your own financial interests against a range of property related risks;
- to do the same for your tenants and other third parties;
- to meet your regulatory and contractual obligations.
Protecting your interests
If you own property, then it is both an asset and a liability. The liability side arises from your exposure to the number of risks faced by your asset on a daily basis.
For example, there is a range of potential threats to the integrity of your property and its value that might arise from things such as fire, storms, subsidence, burglary and similar issues. The financial consequences of all of those things may be potentially catastrophic unless you have appropriate landlord insurance to help.
Your tenants and other third parties
Even the most responsible and conscientious landlord must accept that there is the possibility of things going wrong with their property which may have serious consequences for their tenants or their visitors. If one of your tenants suffers an injury as a result of your property and due legal process subsequently concludes that you are culpable, then the injured party may have the right to compensation.
The sums awarded in such cases can be high, depending upon the severity of the injury sustained. Again, if you do not have the support of landlord insurance behind you, you will have to meet those costs out of your own financial resources.
Regulatory and contractual compliance
This heading is occasionally overlooked when thinking about landlord insurance but it is important and breaks down again into two major categories:
- complying with the terms and conditions of any mortgage or related lending you may have on the property;
- meeting the expectations and requirements of national or local authority landlord registration requirements (where such exist).
In terms of the former, it is typically the case that anyone advancing a mortgage or other significant loan secured on your property, will have a clause in their loan agreement which requires you to maintain full appropriate landlord insurance cover on the buildings for the duration of the term of the loan.
It is worth remembering that standard owner-occupier property insurance is typically not appropriate for a property being used for the generation of rental income. As a result, to avoid being in breach of your loan contract, you must have landlord insurance in place.
The second point relating to landlord registration is slightly more variable, as the legal position is not consistent throughout the home countries of the United Kingdom or the English local authorities. It is typically the case though that if your national authorities or in the case of England, local authorities, require landlord registration, then they may also require you to confirm that you have appropriate landlord insurance.
At GSI Insurance we have extensive experience of the issues surrounding landlord risks and associated landlord insurance.
We’d welcome the opportunity to discuss these further and to help you to discover how you can take the appropriate steps towards protecting your financial interests in this domain.