By Kate Saines
If you are a new buy-to-let landlord or considering entering the buy-to-let market you need to consider the best way to insure your investment.
Unfortunately your standard home insurance policy will not cover you, because when you start earning income from your property it becomes invalid.
This means you’ll need to purchase landlords insurance or buy-to-let insurance. Unlike your home insurance policy, landlords insurance protects your rental income as well as the property itself.
What’s more these policies also give you the option to purchase cover against events only a landlord might face, such as taking a tenant to court for refusal to pay the rent.
Here’s more information on landlords insurance to help provide an insight into the products available.
What does landlords insurance cover?
To provide you with a good basic level of cover you should find a policy which includes buildings insurance, contents insurance and liability insurance.
If you’ve owned your own property before, you’ll know buildings insurance covers you for the actual structure of the building you own.
Landlords building insurance is no different and while different policies provide varying levels of cover in this area most policies will provide you with protection for ‘specified perils’ including natural disasters such as earthquakes, lightening and flooding but also theft or malicious damage.
Contents insurance is, again, something you will be familiar with if you’ve ever rented or owned a home.
As a landlord this will be pertinent if you are renting out the property part or fully furnished. It will cover all items which belong to you and are kept in the property you are renting out. It will not cover items belonging to your tenant – they will need to take out their own contents insurance policy to cover their possessions.
Landlord’s liability is the area you may not be familiar with. Purchasing this will ensure you are covered in case a personal injury claim is made against you by a tenant or a visitor to the property.
Also known as property owner’s liability it will cover against any accidents which cause injury or even death or damage to the property, which you are legally responsible for.
What other features might I need?
Often provided as an added extra, rent guarantee insurance is certainly something you should seriously consider as part of your landlord’s policy. Getting insurance for loss of rent means if your tenant becomes uncooperative and does not pay up you will be covered for the rental income.
Likewise, it will cover you if your home needs work and has no tenants paying the rent while repairs are made, or if you have a gap between tenancies.
You may also want to consider legal expenses cover. This could come in useful if you had to take your tenant to court to resolve a dispute and would cover your for the legal costs of this procedure as well as loss of rent.
Julie Owens, head of home insurance at Moneysupermarket.com, said: “Landlord insurance which includes rent guarantee cover or legal expenses, can be more expensive, however if things go wrong between a landlord and tenant legal proceedings can involve a hefty cost.”
She suggests also putting a good contract in place to ensure both parties know where they stand should a disagreement arise.
What would the ideal policy include?
As well as all of the above, independent financial research company Defaqto advises landlords consider getting cover for malicious damage by tenants and protection for white goods. Malicious damage covers acts like vandalism while white goods will give you cover for fridges, freezers and washing machines.
These additional features will cost you more money so it’s worth thinking carefully as to whether or not you need them. Defaqto suggests analysing all features available and reviewing the details to make sure the cover is right for you.
If you want highly comprehensive cover, you can also purchase features such as home emergency cover and squatters cover (to help with legal negotiation in evicting someone who is not a tenant but living in your property).
It is even possible to get added extras such as access to tenant referencing services via some insurers.
Why is landlord’s insurance so important?
The difficulty for first time buyers to get on the housing ladders has meant there are more people requiring rental properties. Meanwhile the difficulty in selling property in the current housing market is prompting many to rent their homes out instead.
All this is contributing to a busy buy-to-let market and means the number of people taking in tenants for the first time is on the rise. And, if you are a novice, it makes it even more important to have all the essential paperwork in place – insurance included.
When you consider the costs involved with legal expenses – taking a tenant to court can cost from £800 upwards – you will see there is great peace of mind in getting covered.
Figures from the National Landlords Association (NLA) in 2010 revealed 47 per cent of possessions by landlords happened because tenants had not paid their rent.
David Salusbury, chairman of NLA, said: “Gaining possession can be very costly for landlords, especially when it is related to rental arrears.
“Many landlords have mortgages to pay on top of the expense of gaining possession. One third of landlords have reported paying between £250 and £1,000 to have tenants removed.
“This amount is often compounded by late rent payments.”
Julie Owens of Moneysupermarket, said: “Whether you’re looking at buy-to-let property for investment, extra income, or because you cannot sell your house, it is essential to have sufficient insurance to cover any financial losses connected with letting out a property.
“I advise anyone contemplating becoming a landlords to seek advice and get all of the relevant information before taking this venture on.”
Read more: Top tips for buy-to-let landlords
Where to find a landlord’s insurance policy?
Visiting brokers or price comparison websites will be a good starting point as they will give you a selection of products to compare. There are plenty of buy-to-let policies out there so make sure you consider your needs before buying to ensure you pick the correct policy.
Checking the small print is essential before signing up as there may be something vital missing which you thought would be included as a standard feature.
Julie Owens summed it up: “The varying levels of cover available means it’s essential to do your research and pick the policy that is best fit for your circumstances, policy wording can differ so it is vital to check the small print to determine exactly what is covered.”
Use the Myfinances.co.uk comparison tables to find the best deal on buildings insurance.