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Let property insurance explained

Increased government regulation and a tighter taxation regime may have appeared to take the wind out the sails of the buy to let industry recently, and we are seeing a change in trends in the let property insurance market.

Increased operating expenses – even with the competitively priced landlord insurance we are able to offer here at GSI Insurance – is discouraging newcomers from entering the market and prompting existing buy to let landlords to leave it.

Far from it, suggests recent research by the Council of Mortgage Lenders (CML), in a “Profile of UK private landlords” conducted by researchers at the London School of Economics (LSE) and published in December 2016.

The profile revealed some interesting – and unexpected statistics:

  • the number of privately rented dwellings has grown by nearly 125% in the past 15 years;
  • nearly half of all private sector landlords have no mortgage – and so are completely free of any fallout from the government’s withdrawal of tax relief on mortgage interest repayments;
  • nearly two-thirds (60%) of all landlords own only one buy to let property;
  • only 7% owned five or more let dwelling units – but this minority owns roughly 40% of the private sector rental stock;
  • most landlords own let property that is situated close to their own home;
  • two-thirds said that they earn less than 25% of their total income from letting property and only 5% said that rents from let property provided their entire livelihood.

Landlord insurance

The 50% or so of landlords who are buying their let property with the help of a mortgage are almost certain to require adequate landlord insurance (for the building) as a condition of the loan; for the remaining 50%, landlord insurance is a very prudent choice because of the protection it gives to the property and the buy to let business, namely:

Building insurance

  • cover for the physical structure and fabric of the building itself, against potentially serious threats, such as fire, impacts (from vehicles and falling objects), escape of water, storm damage, flooding, vandalism and theft;
  • the total building sum insured is typically equivalent to the reconstruction cost following a severe incident in which the property is totally destroyed;

Contents insurance

  • provides protection for the contents owned by the landlord, whether this is a minimum of curtains and carpets in common areas, for example, or comprehensive cover for a fully-furnished dwelling;
  • the insurance cover may also make provision for cover against malicious damage by tenants or their visitors – but by no means all landlord insurance policies include this element;

Landlord liability insurance

  • any landlord/let property insurance policy is almost certain to make provision for indemnity against landlord liability claims;
  • these may arise if a tenant, one of their visitors or even a member of the public is injured or has their own property damaged and holds the landlord property owner liable;
  • since this type of claim may assume very significant proportions, landlord liability insurance typically provides cover of at least £1 million – and often much more;

Loss of rental income

  • in recognition of the essential commercial purposes of owning property to let, landlord insurance typically includes cover against loss of rental income following a serious insured event which leaves the accommodation temporarily uninhabitable;
  • the amount of compensation payable is generally limited either to a maximum insured sum or to a percentage of the total building sum insured.

The research conducted by the Council of Mortgage Lenders (CML) suggests that buy to let investments are still attractive to many people, who are also likely to need adequate and reliable landlord/let property insurance in order to protect their property and the business they are running.

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