Landlord insurance - what is it and do you really need it?
Insurance is not most people’s favourite topic but when it comes to letting out your property it is crucial to understand what is legally required and what is most advisable in terms of any insurance cover you might want to arrange.
Landlord insurance is no legal requirement, but your mortgage lender will insist that you have it. Costs and liabilities associated with damage to your property or liability to a tenant can quickly add up to thousands of pounds, so we strongly recommend landlord insurance for every landlord.
1. What is landlord insurance
Landlord insurance is a specific type of insurance that is used to cover for all risks associated with the letting of a residential property. It is to a large extend not different to a normal buildings and contents insurance but usually includes those two elements as well as further areas that are specific to the risk that comes with renting out a property.
2. Do I need landlord insurance
It is not a legal requirement to have landlord insurance, but you will find that all mortgage lenders will require you to have landlord insurance if you have financed your buy-to-let property via a mortgage. If you own your property outright or at least you have not used a mortgage lender to get finance, then you could decide not to have landlord insurance. However, expenses and claims that would normally be covered by your landlord insurance can quickly mount up and we feel it is advisable to have landlord insurance regardless of how you have financed your property investment.
3. What does landlord insurance cover
Landlord insurance is an umbrella policy and covers building insurance, content insurance, landlord liability, legal expenses and sometimes additional risk factors. There is also the option to include rent guarantee insurance which often costs as much as the main part of the insurance, but it covers you in case your tenants are unable or unwilling to pay their rent.
4. Is landlord insurance more expensive
As landlord insurance covers you for more risks than just your ordinary homeowner’s insurance you should expect to pay more. An essential part of this insurance is to cover the liability that comes with the risks of having a tenant living in your property. If for example your tenant injures himself or herself due to a faulty piece of equipment that you have provided then your insurer will cover that risk. As this type of insurance cover is more risky than just your buildings or contents insurance your insurer will charge a premium for this product. Expect to pay about 25% more than for an ordinary homeowner’s insurance cover.
5. Do you need landlord insurance when renting to a friend or family
It’s understandable ot be tempted ot save money here if you are renting your property to a friend or family member. After all they are very unlikely to sue you for any damages. But there are two reasons to play this by book and arrange insurance even if your tenant is a friend or member of your family. Firstly, your mortgage lender will most certainly require that your property is insured in case any liability is coming your way. Secondly, landlord insurance also covers you for things like rehoming a tenant if the property becomes uninhabitable due to flood or fire. The cost for housing your friend elsewhere whilst you might have ot refurbish your property after a roof leak could quickly mount up and, friend or not, you will be glad that these costs are paid for by your insurance.
There is also the risk that your tenant’s visitors could sue you if your property is found to be responsible for causing them harm. A simple trip over a loose paving stone could lead to high medical bills and compensation claims that you could be held responsible for. In summary, friend, family or just a normal unrelated tenant – landlord insurance is a must.
6. Do I need landlord insurance if I live in the property?
A typical homeowners insurance policy will not cover you if you have a lodger in your property. In the first place it is advisable to ask your mortgage lender if you are allowed to have a lodger under your current lending product. They will then also advise you that you need landlord insurance for your property. Speak to your insurance broker and ask for a specific policy that covers all risks associated with having a lodger in your property.
7. Does landlord insurance include buildings insurance?
Many landlord insurance products include buildings insurance as part of their policy. As mentioned above, you will definitely need the buildings cover if your property is mortgaged. It’s the lender’s way of making sure that the secured asset (=your property) is protected and in case of flood, fire and other damage can be reinstated. For some properties, typically in large blocks of flats the factoring company will organise the building cover on behalf of all owners. Getting building cover for a large number of units can be more cost-effective if done under one policy, so factors are often tasked with this. If this is the case, make sure to exclude building insurance from your landlord policy so you are not paying twice for the same cover.
8. Does landlord insurance pay if the tenant is in arears?
Many insurance companies offer a so-called rent guarantee insurance which covers any unpaid rent. However, there will be strict conditions attached to these policies such as successful credit checks the tenants must have asked for taking up the lease. There will be further terms and conditions but specify when the cover kicks in, how quickly the insurer might payout and for how long they will cover if your tenant doesn't pay their rent. This rent guarantee insurance is an addition to the usual landlord insurance and will cost you in the region of £200 to £300 per year but also a largely depends on the level of rent that you are insuring. Make sure to compare quotes The actual cover on offer. In our experience only a small number of landlords take out rent guarantee insurance however if it is vital for you to receive your rent then it might well be worth the expense which is also tax deductible.
9. Who provides landlord insurance?
Most mainstream insurance companies have a landlord insurance product in their range and if you half at your property in short in the past with a particular company then it might be worth checking if they can provide landlord insurance. This can often apply if you have used your property as a private residence and then converted it into a buy to let property. You might also want to contact one of your current insurance companies so that you can pool number of policies under one umbrella. We have found that Alan Boswell provides an excellent service, and they have a price guarantee under which they promise to beat any comparable quote from another insurer. Their products are very flexible in regard to what cover you want to sign up for and of course they are very experienced with any landlord insurance related questions.
