Landlords Insurance | What’s covered, what’s not, and why it’s so important.
Paying for buildings and sometimes content insurance for a property you own is always recommended. Many landlords believe that paying for insurance for a property they do not occupy is a waste of money, particularly if it is rented unfurnished. In fact, the opposite is true.
Where landlords have a mortgage, it is a standard requirement to have, at the very minimum, buildings insurance to cover the rebuild cost of the property. Content’s insurance is usually optional. We are aware that some mortgage companies are actively auditing landlords and seeking evidence of their buildings insurance policy. Landlords who fail to provide the evidence could face termination of their mortgage or may have the insurance purchased for them with the costs being added to the mortgage along with significant administrative charges.
Where landlord’s rent out unfurnished properties they usually conclude that they do not need any insurance. However, even where the property is unfurnished there is still a cost to replace such things as carpets, curtains and white goods. Some buildings insurance policies may include a small level of insurance for contents which may be sufficient. But, it is important that where landlords are relying on this, they check their policy carefully to make sure they have an adequate level of insurance.
Building’s insurance will usually cover any structural or fabric damage such as burst pipes in the winter or fire whether caused by the tenant or not. Without such insurance, the cost to make good any damage could run into thousands of pounds on top of which landlords may face the additional cost of temporarily housing tenants during the period the property is uninhabitable. Most landlord insurance policies will cover burst pipes, fire, subsidence and even floods but, again it is important to check your policy.
Landlord’s insurance can also provide third party liability cover to protect against a compensation claim if someone is injured or killed or their property is damaged. Such claims for compensation could be made by tenants, their visitors, passers-by, and even tradesmen. Other optional insurance cover includes rent guarantee insurance if tenants fail to pay rent or cover for legal fees and the costs of an eviction.
Where landlords have insurance, they are not obliged to make a claim on their policy. The excess on some policies is such that it makes little financial sense to make a claim for smaller matters, especially where any repair costs are less than the excess. It is therefore for the landlord to decide when and if a claim should be made with consideration given to any potential increase in the insurance premium payable on renewal.
Landlord insurance policies will not cover a tenant’s possessions, simply because the insurance company has provided cover to the landlord for the property and contents they own and not that of a third party. Tenants should therefore be advised (a standard provision in the tenancy agreement is usually sufficient) to obtain their own policy. However, they cannot be compelled to do so or required to buy any specific policy.
Finally, landlords need to ensure that they comply with any conditions of their insurance to ensure that they do not lose their cover. Such conditions may include restrictions in respect of short or holiday lets, renting to employed tenants only, and restrictions on asylum seekers or company lets.
We always advise that landlords obtain at the very least landlord’s buildings insurance. If the property is leasehold, then building insurance cover is usually obtained by the freeholder. Any policy that is purchased should be carefully considered to ensure that the right cover is in place to protect against potentially high remedial or compensation costs.