Buy-to-Let Landlord insurance is the line in the sand
Here, we’ll be dealing with rent arrears, and you’ll begin to understand why buy-to-let landlord insurance is a powerful tool that all buy-to-let landlords should consider. In this series of articles discussing the strategies, tools, and techniques to deal with and protect against rent arrears, we’ve covered a lot of ground. We’ve examined:
- Why tenants fall into rent arrears
- Tracking tenant money
- Safeguarding against bad tenants
- The rules when getting a guarantor
Previously, we also looked at how break clauses in a tenancy agreement can help to limit the damage of rent arrears.
What is landlord insurance?
Landlord insurance is a special type of insurance that many novice property investors confuse with normal home insurance policies. However, while there are similarities between the two types of policy, Landlord insurance is specifically designed for rental policies.
If landlords think you can cut costs by insuring your buy-to-let property with normal home insurance, think again. If you need to make a claim on a rental property and the policy isn’t listed as landlord insurance. The claim will probably be refused – and you won’t have a leg to stand on.
Why do insurers have different policies?
One of the first questions a new property investor asks about landlord insurance is, ‘why do insurers have a special policy for landlords?’
The answer is easy: it’s about the risk. You don’t live in your tenanted property. Your tenants are more likely to be less respectful of your property and its contents than you are in your home. So, the risk of damage and theft is greater. Then, of course, there’s the potential for the tenant to turn really bad and stop paying rent. With correctly structured landlord insurance, you could protect yourself against this, too.
Do you have to have landlord insurance?
The answer (in most cases) is no; you don’t have to have landlord insurance. However, it may be that your lender makes it compulsory as a condition of your buy-to-let mortgage.
What does landlord insurance cover?
Property investment is a business. Like any business, there will be costs and expenses that you can control. For example, you may be able to increase the rent to maximise rental income profit and cover higher mortgage payments caused by a rise in interest rates. However, there are some things over which you have no control. It is when landlord insurance pays dividends.
Here are the main things that your landlord insurance could cover:
- Damage to your investment property caused by events such as fire, flood, theft and vandalism. It is what you might know as buildings insurance, and offers protection against damage to the structure of your buy-to-let property. The costs of repair or rebuilding will be covered.
- Loss of income caused by an event like a fire or flood, and which causes the tenant to move can also be covered. It doesn’t include non-loss events such as loss of income because of an eviction or a void period between tenancies.
- Loss of or damage to contents will cover items that are included in the rent, such as beds, carpets, electrical goods and furniture. You don’t have to include your tenants’ possessions – make sure you tell them that insuring their items is their responsibility (this will help to reduce your insurance premiums).
- Liability cover will provide the means to pay for legal costs if a tenant or other person brings a court case against you. It could also cover charges resulting from a claim against you for loss or damage (for example, an injury to a person ‘caused by your property’). What this won’t cover is injury caused by neglect – for example, if you knew that the roof needed repairing and a loose tile falls on your tenant’s head.
- Emergency cover will pay for the costs of emergency repairs, covering call-out charges, materials and labour. There will be a limit on the amount of cover provided – often around £500.
- Rental guarantee cover will replace your rental income if your tenant becomes unable to pay their rent. You must have a bona fide tenancy agreement in place. And the tenants must have been properly (and successfully) vetted and credit checked. Typically, the rental guarantee will cover the loss of rent for up to 12 months.
The cost of not having landlord insurance
You wouldn’t drive a car without being insured, even though you don’t expect to have an accident. You may have the best tenants in the world, but the one thing you can expect is the unexpected. Your tenant loses their job because the firm that has employed him for the last thirty years goes bust. There’s a fire in the kitchen, and the tenant must move out while the property is being made habitable again.
Imagine losing rental income and having to pay for the cost of your tenants’ temporary accommodation. As well as paying for the repairs to be completed. In just a couple of months, you could be thousands out of pocket.
Don’t leave your buy-to-let income to chance
When you rent out your investment property, don’t leave anything to chance. You’ll have spent time and effort making sure your investment is the best it can be, done your due diligence, and projected your cash flow. If you don’t take out landlord insurance, it’s tantamount to closing your eyes, crossing your fingers, and hoping for the best – all to save a few hundred pounds a year.
Contact one of the Ezytrac team or me today on +44 1522 503 717. We’ll help you to think about the type of landlord insurance cover you need to protect yourself against rental arrears and a host of other unforeseen circumstances, which could turn a profitable property investment pear-shaped. Armed with the information from this conversation, you’ll be in a far better position when speaking to an insurance broker and tailoring a landlord insurance policy to your exact requirements.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA