Practical Advice To Help You Profit From Rental Property
14 Tips On Buy-To-Let Insurance
Insurance comes in various forms but they are all a cost to your business which must be balanced against the benefits available. The only buy
to let insurance which is absolutely essential is the buildings insurance i.e. for the ‘bricks and mortar’. When you arrange a mortgage the
lender will insist upon this to guarantee his security - your house. But there are also lots of other insurance products you can
consider...
You must take out Buildings Insurance (including Legal Liability).
It is vital to insure the building itself. If the property is destroyed or damaged, funds must be available to restore the property or repay
the loan. When you are inquiring about a mortgage you need to ask about insurance. Most lenders will not offer you an alternative but they
will allow you to find your own. This applies to any sort of insurance which might be connected with the purchase of the property e.g. life
assurance and mortgage protection insurance. If you do make your own insurance arrangements the lender will need to approve the policy
and be co-named on it. The amount of insurance cover you require for the property will be decided by the surveyor who inspects the property
on behalf of the lender. The figure for reinstatement value is the one you must use when arranging buildings insurance.
Tell the insurer that you intend to let out your property and who you intend letting to.
The policy will not be the same as a normal domestic insurance policy which will not cover you for letting out your property. Many
household insurance companies that will not deal with rented property, especially if the property is rented to students, or especially asylum
seekers. You need to use specialist insurance policies designed especially for landlords, with particular provisions to cover rented
property. Take note of the conditions which apply to ensure cover when the property is vacant. Legal Liability insurance (Public Liability
and Employer's Liability) should be included in specialist landlord’s insurance.
If you are providing high value furnishings get a contents policy. This will protect things like the carpets,
curtains, appliances and other fixtures or fittings and furnishings. If you do take out a contents policy you should make sure that it covers
you against damage caused by the tenants. There is no requirement to take out contents insurance - it is up to you to decide.
Only buy insurance for your own possessions. You only need to get insurance cover for those items which you have
provided - you have no obligation to insure the possessions of tenants. Tenants should provide contents insurance cover for their own
possessions prior to moving into the property. In fact, you are entitled to insist that tenants insure themselves against accidental or
malicious damage.
Inform tenants about insurance. As a landlord you are only responsible for the building and you must have buildings
insurance which covers structural damage. You may also have contents insurance to cover your contents in the property. However, the tenants
themselves should take out their own insurance for personal belongings. For example, student properties can be a target for burglaries,
especially during vacations when they are often left empty for several weeks.
Do you need personal insurance?
When you take out a mortgage some lenders will insist that you take out some form of life assurance to ensure that the mortgage will be
repaid in the event of your death. Again, this is something you need to find out about when you are looking for a mortgage. If you already
have life assurance you may not need to take out more. But if you do need it get a quotation from your lender but also obtain comparisons
elsewhere. Consult an Independent Financial Advisor (IFA).
Get the right type of life assurance Level Term Assurance is probably the most common type of policy when
arranging insurance cover for mortgages. The policy is written for a set term - the same as the period of the mortgage term. If the person
who is insured dies, the money from the insurance will be used to repay the loan. With this type of policy the cover remains constant over
the term of the policy. This makes it useful for interest only mortgages where none of the loan is being paid off. If a repayment mortgage is
being used a Mortgage Protection policy would be a cheaper alternative. With this policy the level of cover reduces in line with the mortgage
debt.
Consider which risks do you need to insure Almost all potential risks are insureable but you need to look at the
policies carefully and weigh up the costs versus the benefits. You may decide to 'take the risk' in some areas. After all, what an insurance
policy is doing is simply turning a ‘possible’ cost e.g. a central heating breakdown, into a definite cost i.e. monthly premiums. You could
be insuring against a possible liability that may never arise, or only arise very rarely. Here are some additional insurance ideas...
Rent Guarantee Insurance. Rent guarantee insurance policies are designed to cover you against loss of rent caused by
tenants defaulting on their payments. They will enable you to recover the loss of income caused by tenants who are refusing to pay. They
normally only cover the rent for a short period e.g.to give you time to recover possession of the property.
Legal Insurance
Court proceedings can be expensive. This insurance will cover legal costs arising from disputes with tenants. If you have a legal problem
e.g.unpaid rent, damage to your property, or squatters, this insurance will cover all legal fees and costs incurred by a solicitor. This will
normally be a solicitor appointed by the insurer.
Gas cover. This risk area enables you to take out an insurance policy that covers all the costs in maintaining and
annually checking any gas appliance including you central heating system and can include 24-hour breakdown cover. This can be very useful if
you do not know a reliable gas engineer.
Appliance breakdown.
This risk area enables you to insure your appliances against breakdown. Where a breakdown occurs, the repair will be carried out quickly and
the repair cost met by the insurance company. This risk area will also include or can also be extended to cover central heating, plumbing and
electrical systems. With some insurers your tenant can phone direct to the insurer when a problem arises.
Other rental insurance policies... Some rental insurance policies provide cover that will continue to pay your rent
should the property become uninhabitable for a period of time. For instance, your property may have been flooded, meaning that your tenants
have to move out whilst the property is repaired. This aspect of the cover will also usually provide hotel accommodation for the tenant up to
a certain value for a predetermined period of time. Although it is expensive, you can sometimes get cover to insure you against void months
when the property is unlet.
Finally... Shop around for the most competitive quote.
Don't just buy on price - look at the extent of the cover and the exclusions.
Make sure that the policy includes periods between lets when the property is vacant.
Don't pay for what you don't need, but make sure you have adequate cover for what you do need
Always read the small print.
Don't sign anything you don't understand.