Author: Stephen Phillips , 21 February 2008.
Landlords insurance specialist Alan Boswell Group highlights the things property owners should look out for when buying insurance for residential buy to let properties or commercial investment properties. It is important for property owners to get the fundamentals right. This means not paying too much for an investment property, making sure you have the best possible
mortgage deal and keeping your investment properties well maintained so that they are easy to let.
Another important aspect is making sure that you have the right
landlord insurance. This does not necessarily mean getting the cheapest
landlords insurance quote, but one that offers the right level of cover at a realistic cost.
Getting the right landlords insurance cover …
Of course, you need the basics; insurance to re-build the property in the case of total devastation by fire or other risks. But the traditional “fire and special perils” insurance, while including cover for storm damage, flood damage, as well as accidental damage to TV aerials and fixed glass in windows and doors, is no longer adequate for today’s needs.
Landlords insurance customers should consider the need for “all risks” cover on both buildings and any contents that they may have in the property. While “all risks” is something of a misnomer, this cover does go well beyond the traditional scope of insurance to cover accidental damage caused by a wide range of non-deliberate events. However, it does not cover malicious damage by the tenant.
Buyers of
landlords insurance should make sure that the
insurance company and
insurance broker are aware that the property is occupied by tenants. A normal
home insurance policy will not do, because the cover and costs assume occupation by the owner. A
specialist landlords' insurance policy will generally allow you to let to students and tenants on housing benefits without additional charge. But it is important that you tell your insurer if this is the case as some companies apply restrictions.
What Most Landlords Insurance Policies Include...
Most
landlords' insurance policies will provide anything from 10% or 20% of the sum insured (in addition to it, rather than as part of the cover) to cover loss of rent for up to 12 months, should the premises be damaged and become uninhabitable. However, something that may not always occur to landlords is the need also to cover the cost of re-housing a tenant if they have to move elsewhere during a period of rebuilding or renovation. A good
landlords' insurance policy will allow up to 10% of the sum insured (in addition to the loss of rent cover) to provide money for alternative accommodation for a tenant, where necessary.
Few
buy-to-let properties are let continuously; there are bound to be times when the property is unoccupied. This can occur both on initial purchase and, more frequently, between lets. It is important to ensure that your policy does not exclude reasonable periods of unoccupancy. Ideally, cover should allow for an initial period of up to 60 days and then inter-letting periods of up to 90 days.
Most premises are built of brick or stone, with a slate or tiled roof. If not, additional charges may apply. A good
landlords' insurance will only charge extra premiums in the case of timber framed buildings and thatched roofs.
If there are any sign of cracking that could suggest subsidence damage exists to the property, this should be declared to the insurance company before any cover is arranged. Otherwise, there could be misunderstanding as to when such damage originated. If before the insurance started, there can be no claim.
Setting the sum insured on your landlords policy …
When setting the sum insured for your property, it is important to remember that it is the cost of rebuilding that matters, not the market values. This can be higher or lower, depending on market conditions. The Association of British Insurers provides a useful
calculator to help you.
Sums insured can be 'index linked' to keep pace with inflation, but you need to ensure that this is kept up to date, with periodic reviews.
Other insurances for landlords to consider...
A
landlords' insurance policy should also include third party liability cover up to £5,000,000 in respect of any one incident, although this may be restricted to £2,000,000 in the case of terrorism. It will also normally include employers' liability cover up to £10,000,000 for any one incident, to cover cleaners, gardeners, caretakers, and persons doing minor maintenance and repairs.
Legal expenses and rent guarantee cover can be arranged, where required.
Despite a slowdown in the housing market – as well as indications that commercial property is becoming less easy to sell – owning rental property can be a good form of long-term investment.
It is important always to seek independent advice before making any decision regarding your insurance or finances. If you would like any assistance, please
contact one of our advisers.
NOTHING CONTAINED IN THIS ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND
Alan Boswell Insurance Brokers Limited, Alan Boswell Insurance Services Limited and Alan Boswell & Company Limited are authorised and regulated by the
Financial Services Authority.
