A-Z of buy-to-let insurance
Interested in becoming a landlord but finding the process intimidating? Struggling to decipher all the insurance jargon that comes with your first buy-to-let property? Rest assured, you are most certainly not alone.
Making your first foray into the world of property letting is a daunting prospect, and understanding the terminology associated with buy-to-let insurance is probably one of the most confusing parts of the process. But this handy guide to the commonly used terms should help you to navigate a much smoother path to your buy-to-let goal.
An unintentional, one-off incident that causes damage to the property or its contents, such as a glass of red wine spilt on the carpet; a floor tile cracked by a falling object, or a window smashed by next door’s football.
These are insurance products that can be bolted onto a standard landlord insurance policy to personalise it to your particular needs and widen or increase your level of cover.
Assured shorthold tenancy (AST)
This is the standard tenancy agreement that is normally used for residential lettings. (See also tenancy agreement.)
See also ‘landlord insurance’.
Condition of average
This clause refers to the insured rebuild value of your property, which you declare at the outset of a buildings insurance policy. Essentially, it’s warning you that claim amounts are paid based on that insured value – and won’t be increased if it turns out that you undervalued your property when arranging insurance cover. So, for instance, if you gave an insured value that was actually 80% of the true value, then you will only receive 80% of your claim. (See also ‘index linking’.)
Employers liability insurance
You may need to consider this cover if you intend to employ anyone on a casual basis at your property, such as a cleaner or gardener. It will protect you against the cost of compensation claims if they sustain an injury or illness as a result of their work for you. (See also ‘landlord liability insurance’.)
These are the things your insurance provider won’t accept claims for. They should be detailed in your policy documents.
Good state of repair
Most insurers will expect your property to be well maintained and kept in ‘a good state of repair’ for a policy to be valid. This means, for example, no rot, damp, leaks, unfinished building work, unsafe electrics or vermin infestations.
Movement of the ground under the property – either upwards (heave), downwards (subsidence) or horizontally/downwards (landslip) – which can cause damage to the building.
House in multiple occupation (HMO)
This term refers to properties that are rented out to three or more tenants who are not from one household/family, and who share facilities such as a kitchen, bathroom and toilet. Certain standards must be met by law if you are renting out your property as an HMO (eg a house share or as bedsits), and you may need to apply for a licence from your local council. Specialist HMO insurance is available to provide landlords with suitable cover for this particular type of rental arrangement.
Read more: HMOs – a landlord’s guide
If your property is index-linked, then its value under a buildings insurance policy will be automatically adjusted at each policy renewal, according to inflationary changes to rebuild costs. This helps to prevent your property being undervalued, and therefore underinsured. The original rebuild value given at the outset of your policy must be accurate for this system to work for you though!
Damage or loss that occurs as a result of other damage or loss – and may not necessarily be covered under standard insurance policy terms and conditions.
Your insurance provider may require you to carry out regular checks of the property to make sure everything is in order and to alert them to any potential claims. But don’t forget to give your tenants at least 24 hours’ written notice before entering the property.
This is a record of the property’s contents and condition, agreed with the tenant(s) at the start of a tenancy and checked out with him/her/them when the tenancy ends. It should include any fixtures, fittings, furnishings, white goods, objects, decor, walls, doors and windows associated with the building itself, as well as the contents and state of any outdoor areas and outbuildings.
Key protection insurance
This insurance option will cover the repair or replacement of your property’s locks and keys.
Landlord buildings insurance
This type of insurance protects the bricks and mortar (and usually fixtures, fittings and outbuildings) of your property. It covers the cost of repair or rebuild following such events as fire, flood, theft, malicious/accidental damage and subsidence (see also ‘ground movement’).
The cover may be unlimited, or it may be based on the rebuild value of your property. It’s not compulsory by law for landlords to have buildings insurance, but it’s certainly recommended to help protect your investment. If you’re taking out a buy-to-let mortgage then your mortgage provider will probably require you to have adequate buildings insurance in place.
Landlord contents insurance
A landlord contents insurance policy protects against the same risks as a buildings insurance policy (see above), but this time it covers the movable items contained inside the property. If you’re renting your property out unfurnished, then your contents are likely to be minimal. But don’t forget to consider carpets, curtains, light shades, mirrors and white goods, if applicable (and if not already covered by your buildings insurance policy). Just to be clear, it’s not your responsibility to insure your tenants’ belongings.
Landlord home emergency cover
This provides support in the event of a sudden emergency such as a plumbing problem, broken window, vermin infestation (rats, wasps, etc) or complete failure of the heating, hot water or electrical systems.
Read more: What is landlord home emergency cover?
Landlord excess protection insurance
With this policy option, you can be reimbursed for the excesses that you have to pay when making certain claims under a buildings or contents insurance policy. (See also ‘policy excess’.)
Read more: What is insurance excess protection?
Landlord legal expenses insurance
This provides cover in the event of property disputes such as eviction, repair and renovation disputes, health and safety prosecutions and tax investigations.
Landlord liability insurance
This covers claims made against you following an injury sustained or the death of any individual on your property. It also covers damage to another person’s property or possessions as a result of an incident connected with your property.
Landlord portfolio insurance/Property portfolio insurance
This is designed for landlords with multiple rental properties, who want to insure them under a single policy.
Damage, whether full or partial, to an insured building or its insured contents.
Loss of rent insurance
This is often included as part of a landlord buildings insurance policy, and covers loss of income following a claim if your property is rendered uninhabitable.
Damage carried out deliberately, such as vandalism.
This is the amount you must pay towards an insurance claim if you make one. Excesses are agreed at the outset of insurance policies. Most are compulsory excesses, set by your insurance provider, but sometimes you’ll be given the option of choosing voluntary excess amounts. Generally speaking, the higher you set the excesses, the lower the premium; but never commit to more than you could afford.
This is the amount it would cost to rebuild your property to the same specification, in the event of total destruction/loss. It’s usually quite different to the market value of the property and can be worked out using a rebuild calculator, such as the one provided by the Association of British Insurers, or, in more complex cases, through a professional survey.
Rent guarantee insurance
This covers income lost as a result of tenants defaulting on their rental payments.
Tenancy agreements are a legally binding document stating all rental terms between the landlord and tenant(s). Most insurance providers will require a formal rental agreement to be in place under your policy terms.
Unoccupied property insurance
This provides cover when your property is empty for an extended period of time (usually 30 consecutive days or more) – for example, during renovation work or in between lettings.
Wear and tear
Wear and tear is the gradual decline in the condition of something as a result of its day-to-day use. This is not generally covered by insurance policies.