Insurance and Buy to Let Properties: What You Need to Know?
Buying a home to let can be a very sound investment, with many people purchasing properties in recent years rather than paying into their pensions. However, like with any investment, there are risks to take into account.
Whether it is tenants refusing to pay their rent or causing damage through carelessness, there is a strong chance of you suffering a few headaches as a landlord. Thankfully, there are insurance policies available to cover potential liabilities, but the market can be something of a minefield and it is important to know exactly what you are going to be covered for before agreeing to a policy.
You see, standard household policies are not designed for let properties and if you do not have specialist landlord insurance you're likely to suffer much financial heartache if you ever need to make a claim. For example, a regular policy will typically only cover an unoccupied home for around a month, while a landlord policy often provides coverage for three to six months.
Different types of cover
Essentially there are three types of landlord policies, although they are often rolled up into one comprehensive cover. The bare basics a landlord needs to protect is the property's structure. A buildings policy is designed to protect against incidents such as fire and extreme weather conditions, but will also often include static fixtures such as fitted wardrobes.
Contents cover is another consideration. In many cases the tenant will have their own contents and will purchase their own cover, but where a property is let furnished, it makes sense for the landlord to have a policy in place, especially as tenants do not tend to take the same care with items as owners do.
Then there's public liability insurance. Again this can be included as part of buildings cover and protects the landlord in the event of the tenant or their guests being injured inside the property, such as them tripping on a loose floorboard.
Coverage does not have to be limited to these three things, though. Policies can be tailored to protect against a host of other risks. One feature that landlords may find particularly useful is rent guarantee insurance as it provides protection for income lost due to tenants failing to pay.
Legal cover can be added to protect the landlord in the event of them facing legal action relating to the property, including disputes with the tenants themselves. Some policies also cover alternative accommodation, so if the property is to become uninhabitable due to, say, a flood, then the cost of moving the tenants to another home, or in some cases a hotel, is covered.
Sometimes an insurance provider will not cover properties occupied by certain types of people so it is important to be open and honest with the company before taking out cover. Tenant groups that may not be covered include students, asylum seekers and those in receipt of housing benefit. If you intend on letting to such people, you should find out if coverage is available, and if it isn't then look for an alternative provider.
You should also consider the amount of cover needed and the excess that is applicable. Many insurers pay out proportionally so if you are found to be 50% under insured, they will only pay for half of your claim, even if the amount is relatively small. As well as under insuring you may be tempted by larger excesses in order to lower your premiums but there can be a point where an excess becomes so large that it effectively renders a policy pointless because it is simply not worth claiming on.