October 25

The ultimate buy-to-let guide to landlords insurance

Some buy-to-let landlords – especially beginner investors – believe that landlords insurance is a waste of money. They explain to their new tenant that it is the tenant’s responsibility to insure against loss or damage to their personal property, and leave it at that. But there’s a lot more at stake than the tenant’s property.
You insure your car, your home, your contents, and yourself. In fact, it’s likely that you’ll have anything that has any value to you insured (and if you haven’t, perhaps you should consider doing so?).
Here I look at how one landlord came unstuck when an unexpected disaster struck. I also examine the benefits of landlords insurance and the clauses that you can have included.

Jacqui and Bill bought a property down the hill… and ended up with a house full of water

A married couple I met a few years ago had inherited a sum of money after the death of the husband’s eldest brother. He’d had cancer and had left his only sibling more than £100,000, with a note saying simply to “use it to build your future.”
Jacqui and Bill had invested the whole amount – and their life savings – in a solid three-bed semi-detached and found a great tenant. The rent was £850 per month, giving the couple a very reasonable yield of 6.8%. With no mortgage payments, they were doing very nicely. They employed us to manage the property for them. Despite recommending that they take landlords insurance, Jacqui and Bill never did. “I’ve had home insurance for the last thirty years,” he told me. “I’ve never made a single claim. When I think of the money I’ve wasted…”
No matter how much I tried to reason with him, he simply wouldn’t contact an insurance broker to discuss landlords insurance.
For almost a year everything worked perfectly. The tenant turned out to be amazing. He never missed a rental payment, and we hardly ever heard from him. Then, one morning, we received a plea for help from him on our Emergency Contact application. He explained that the whole of the downstairs had flooded, and attached a photograph of the kitchen.

A burst water pipe bursts a landlord’s future

The problem had been a burst water pipe in the middle of the night. The tenant had been sound asleep and hadn’t noticed anything until he awoke in the morning. It was a Sunday, which made things even more difficult.
Fortunately for the tenant, all of his ruined personal belongings were replaced by his insurance company, save for a £250 excess.
The landlords weren’t so lucky.
They’d stretched their finances to make their buy-to-let investment. Instead of saving as much of their rental income as they could to build up a contingency fund and set up a forward-looking cash flow plan, they’d treated themselves and their grandchildren to a big family holiday in Florida.
Worst of all, there were new carpets, re-plastering, redecoration, and furniture that needed replacing to add to the plumbing repairs. The total cost came in at an estimated £9,000. The work was set to take around three months… if they could raise the funds to pay for it all. Of course, while they were trying to raise the funds and while the repair work was being done, they had no rental income.
In total, Jacqui and Bill’s cost of not taking insurance totalled almost £13,000. In addition to this was the interest they now had to pay on the loan they took to get the house back up to scratch.

The benefits of landlords insurance

The benefits of having landlords insurance became immediately evident to Jacqui and Bill when that water pipe burst. They’d got used to paying their insurances on their home, and despite never needing to make a claim they continued to pay them.
Because they had a tenant who was as good as gold, they didn’t think they needed to pay for an ‘expensive’ landlords insurance policy. After all, it’s not a legal requirement. It turns out it is good business and financial planning. A landlords insurance policy would have covered the cost of repairs, redecoration, and lost income from rent.
In some ways Jacqui and Bill were lucky. The whole sorry episode cost them thousands (which they didn’t have), but it could have been even worse. Just imagine if the tenant had slipped and broken his back – the compensation claim could have run to tens of thousands of pounds. Landlords insurance could cover such an eventuality, too… plus legal expenses.

What can you have included in landlords insurance?

In the same way that you can have a range of different clauses and conditions added to any insurance policy, so you can to your landlord’s insurance policy. Of course, the extra cover will cost more in premiums.

·      Buildings insurance

Most homeowners understand that they need building insurance to cover the structure of the building if it is damaged by a major event such as force majeure (floods, storm damage, and falling trees, for example).
If you use a mortgage to buy your home or a buy-to-let property, then the mortgage provider will insist that you have this type of insurance as a minimum. If you use your money to invest, there is no legal requirement to have buildings insurance.

·      Contents insurance

If you are letting a property that is furnished, contents insurance will cover damage to (or loss of) the items that are covered under the terms of the policy.

·      Accidental damage

There might be a time when your tenant accidentally causes damage to your property or items in it. I remember a time when a friend’s young son pulled a sideboard on top of him. Thankfully, the three-year-old was unhurt. The expensive set of crockery, television and sound system didn’t survive. However, within weeks they had been replaced new for old under the terms of their household insurance.
Accidents happen, and accidental damage cover takes care of the financial impact.

·      Liability cover

You might not realise this, but as a landlord, you’re responsible for your tenant’s health and safety inside your property. If there is an accident on your property, you could find yourself on the wrong end of a lawsuit. Liability cover is not a ‘nice-to-have’ – it’s a necessity.

·      Legal cover

If you get into a dispute with your tenant, then the legal cover will help towards your legal costs of fighting your case.

·      Emergency assistance

When there is an emergency to pay for, this cover will prove invaluable. Emergencies that might be covered include boiler and fridge/freezer breakdowns, and even smaller emergencies such as the need to call a locksmith.

·      Loss of rent

Loss of rent cover will ensure that your reasonable market rent is paid to you in the event of an extended void period caused by your property being deemed uninhabitable.
You might also be able to buy rental guarantee insurance. This protects you against a tenant who refuses to pay their rent for an unjustified reason.

Can you afford not to have landlords insurance?

There is an argument that as a buy-to-let landlord you only need insurance if it is either required by law or if you can’t afford the cost of something going wrong. The risks to a property are different when you don’t live in it yourself. I prefer to consider landlords insurance with a single question:
“Can you afford not to have it?”
Jacqui and Bill thought they didn’t need landlords insurance. They thought it would be a waste of money. It turns out it wouldn’t have been.
And don’t get caught out if you become an accidental investor by inheriting a house or renting out your home – your standard home insurance policy won’t cover a property that is rented to tenants.

How much will landlords insurance cost you?

Landlords insurance is a lot cheaper than many buy-to-let investors think. Basic policies can start as low as around £100 per year. Of course, the more conditions and clauses that are added, the higher the premiums will be.
To make sure that you get the right cover to protect your investment, you should speak to an insurance broker who has specific buy-to-let experience. They’ll also help you search out the most cost-effective insurance policy. It may cost a few hundred pounds a year. That’s a sum of money Jacqui and Bill wish they’d paid. So, before you close this article and move on, ask yourself one question:
“Can you afford not to have landlords insurance?”
Please feel free to contact us by phone +44 1522 503 717, or by using our online contact form for information about our services. We’ll be pleased to help you find an insurance broker who will be able to make sure you get the right cover at the right price.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA


buy-to-let landlord, landlords insurance

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