If you are the landlord of buy to let property, the success of your business relies on the fairly simple equation of income from rents received outweighing the costs involved in running the enterprise.
Since one of those important outgoings is your landlord insurance, you might want to make sure that it is a subject you understand, in order to secure good value for money and the cover you need to protect your investment in the let property and losses to your business as a result of damage or loss of rental income.
This short guide is designed to help you towards that understanding by considering the principal components of the typical landlord insurance policy.
Your principal investment, of course, is in the property you have bought to let and the protection of its very structure and fabric against loss or damage. It might seem a simple and straight forward matter, but building insurance may in fact prove more complicated than it first seems – and given the size of the investment likely to be involved it is important to get it right.
You need to ensure, for instance, that the insurance covers the risks to which your let property is likely to be exposed. These are likely to include such potential disasters as fire, flooding, escape of water, impacts, storm damage, and vandalism.
Not all building insurance policies extend cover to all risks – or may charge an additional premium for their inclusion. One such example is subsidence and, if this is likely to be a problem, you might want to check carefully whether the risk is included in your policy.
Another area where you might want to check cover is the risk of flooding. If your let property is in a location vulnerable to flooding an insurer may impose additional conditions on the level of protection offered or may decline cover altogether. The Environment Agency publishes a scaleable map detailing those areas of the country most at risk of flooding from rivers or the sea.
When arranging cover for your building it is important to that the total sum insured anticipates the worst case scenario in which the entire premises need to be rebuilt, as well as the land being cleared of the remains of the property. There are two ways of ensuring that this sum meets any likely cost of complete reconstruction:
- make a valuation of the current rebuilding cost – remembering of course that this probably bears no relation to what you might have paid to buy the property; or
- choose a policy that covers the total loss of the building up to a fixed limit.
You can also use a rebuilding cost calculator such as this one:
The cost of rebuilding your property – and the total sum that needs to be insured – of course changes over time and you might want to ensure that it remains up to date.
To help you maintain that sum at current prices, the Royal Institute of Chartered Surveyors (RICS) and the Association of British Insurers (ABI) publish a House Rebuilding Cost Index showing changes in costs on a monthly basis.
Loss of rental income or alternative accommodation
Your buy to let business relies on the rental income it generates. Following a serious insured incident, however, the building may become temporarily uninhabitable and you run the risk of lost income.
Landlord insurance, therefore, typically may include compensation for lost rental income or the provision of alternative accommodation up to a given limit – usually calculated as a percentage of the total building sum assured or up to a fixed sum.
When your property is left unoccupied – because a tenancy has ended, for instance, and you are waiting for new tenants to move in – the property is subject to different, additional risks to those faced by a home that is occupied.
After a given period of vacancy, which is typically anything from 30-45 consecutive days, insurers typically restrict or remove cover. The period before it is formally considered to be unoccupied may vary from insurer to insurer and, as the Money Advice Service recommends, you need to know how long this period is and what if any special precautions you are expected to take to help minimise the risk of loss or damage whilst the premises are unoccupied.
Although your tenants remain responsible for insuring their own possessions, your let property might also include items owned by you – in common areas or especially if it is a furnished let.
Landlord insurance may also extend cover to the contents you own, therefore, and this might also include accidental damage.
This might also be an appropriate moment to remember that your tenants are paying customers and not occupying your property as friends or relations. As a story in the Telegraph newspaper cautions, it is important to keep the relationship on a business footing – it might also prepare you for the possible need for your landlord insurance to cover malicious damage caused by your tenants.
Property owner’s liability cover
As the landlord, you have a duty of care towards your tenants, their visitors and for that matter any other member of the public. That is to say, you may be held liable for any personal injury sustained or property damaged as a result of your breaching that duty of care.
Therefore, landlord insurance typically provides indemnity against such claims, which may assume frighteningly significant proportions. In recognition of that fact, property owner’s liability insurance typically starts at a minimum of £1 million, but even higher sums are by no means uncommon.
In addition to these typically core elements of cover, some landlord insurance policies may also provide safeguards against a host of additional risks.
Examples of such additional cover might include compensation for tracing and gaining access to leaking pipework, cover for the loss or theft of keys (and replacement locks), or legal fees incurred in defending a claim (or, optionally, the cost of pursuing tenants for arrears of rent).
As with other types of household insurance, it is important to bear in mind that your landlord’s insurance is almost certain to come with excess amounts attached to any claim and that these excesses may vary according to the type of claim you are making.
At GSI Insurance, we have a range of let property insurance policy options available to enable you to get the most appropriate cover at a price that meets your budget. Please click through to the relevant page or give us a call on 0800 612 9376 – we will be delighted to help.
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