Landlord insurance explained

Renting out a property involves various safety and security risks so a flexible insurance policy is vital. Simply Business examines the options.

A comprehensive landlord insurance policy can offer a peace of mind and help landlords protect their assets, while ensuring compliance with the requirements of your mortgage lender and any lease that’s in place.

When your property is rented out, a normal home insurance policy won’t usually be sufficient to cover damage caused during the tenancy. This is because most residential home insurance policies are valid for owner occupiers only, so landlords would need a dedicated landlord insurance to keep their assets protected.

A landlord insurance policy can cover the building and any contents you provide for your tenants; provide financial protection if your tenants fail to pay their rent or help you pay rental-related legal costs. Outlined below are some of the key types of landlord insurance along with useful tips for choosing your policy.

Landlord buildings insurance

Similarly to a home insurance policy, a dedicated landlord insurance will usually include buildings cover, which can pay to repair or rebuild your rental property if it’s damaged by fire, flood or vandalism. If choosing a buildings insurance, you’ll need to calculate the “rebuild value” of your property – this is the total cost of rebuilding it from the ground up, including labour and materials.

The rebuild value will represent your cover limit, which is the maximum amount an insurer will pay out in the event of a claim. It is important to estimate this figure as accurately as possible, because if you’re underinsured, your insurer can reduce any claim in proportion to your shortfall in cover.

Landlord contents insurance

If you opt for a landlord contents insurance, you’ll be covering any items in your rental property that belong to you, for example any furniture and white goods that you provide for your tenants.

This insurance can pay to replace or repair your items if they’re stolen or damaged, but it won’t cover your tenants’ belongings – if they require further protection, it would be up to them to take out their own contents insurance.

Property owners’ liability insurance

If someone suffered an injury or their possessions were damaged in your house and they took you to court, the legal fees and compensation payment could be costly. For example, if a tenant tripped on a broken floor tile, or a neighbour’s car was damaged by debris falling from your rental property, a liability insurance could be used to cover the legal fees or compensation pay-outs up to the limit of your policy.

Tenant default insurance

Tenants’ rent arrears now cost around £900 million annually, with 40 per cent of landlords saying they’ve had a tenant who has failed to pay their rent. Tenant default insurance can help landlords in situations when their tenants’ rent has fallen into arrears as it can cover your rental income for a certain period of time (up to a maximum value).

Legal expenses insurance

Landlords can incur rental-related legal costs if something goes wrong and they need to take action, for example to evict their tenants or pursue unpaid rent. Landlords’ legal expenses insurance can cover the legal costs in situations like these. Accidental damage insurance You can add accidental damage cover to your buildings insurance and/or contents insurance so that you’re covered in case someone has an accident that causes damage to your property. For example, if a guest stained an expensive carpet with a wine spillage, or if a DIY project went wrong and caused costly damage to the property. Since damage to landlords’ property costs an estimated £4.5 billion a year according to an Access Legal survey, this could be a cover worth considering.

Choosing the right insurance

Here are some tips on how to determine what policy would be most suitable.

● Landlord insurance isn’t a legal requirement, but you should check your mortgage documents and your lease to see which insurance covers they require.
● If your rental property is a flat and the freeholder is responsible for insuring the building, you may want to take out fixtures and fittings insurance instead of buildings insurance.
● Once you’ve decided which covers you need, you can choose to buy them in a single landlord insurance policy.
● Different landlord insurance providers offer different covers, cover levels, exclusions and excesses, so it’s a good idea to compare quotes from a few different insurers.
● Your property’s rebuild value is not the same as the market value. You could use a rebuild calculator to get an estimated rebuild value (limitations apply), or hire a surveyor.
● Note that if you don’t have a buy-to-let mortgage because you’re an ‘accidental landlord’, you must inform your mortgage lender as soon as you begin renting your property. If you don’t, you’ll be breaching your mortgage conditions, and your insurance will not be valid.
● The price of your landlord insurance will depend on the cover and cover levels you pick, plus details about your property like the location, the tenants and the security measures you have in place.

Jade Wimbledon is a writer for Simply Business, an online small business and landlord insurance provider.