Risk is an area often overlooked by landlords, but failing to protect the main assets of your business, which often have borrowings secured against them could lead to ruin. Landlords often fail to understand the types of insurance risks that they are exposed to and are unaware that insurance coverage for buy-to-let investments is very different to the standard household insurance policies that cover owner-occupied dwellings. Therefore, landlords are advised to seek the services of specialist insurance companies catering for the buy-to-let market. Essentially there are five broad categories of landlords insurance: -- Landlords buildings insurance -- Landlords contents insurance -- Emergency assistance -- Legal expenses insurance -- Rent guarantee insurance Landlords buildings insurance These are the core policies and will generally provide coverage for a number of perils including fire, flooding, burst pipes, malicious damage and owner's liability. It is worth checking the policies of each insurer as the perils covered may vary. Other issues to be aware of are the amount of money the insurance company will pay out in the event of damage occurring, types of tenants (student tenants are perceived to be higher risk) and consent to let from your mortgage lender, as failure to gain consent will render your insurance void in the event of a claim. Landlords contents insurance Many landlords insurance specialists will offer the option of limited or full contents insurance. Limited contents policies are designed for properties that are let unfurnished or part furnished. A typical policy would provide cover of up to 5,000 for items such as curtains, carpets, white goods and light fixtures. Most policies will also provide employers and landlords liability cover in relation to these products. Liability cover is important, as the number of personal injury claims relating to contents has risen at an astonishing rate since the 1990s, with awards in excess of 100,000 not uncommon. Full contents policies are for fully furnished properties or for limited contents that would cost more than 5,000 to replace. When applying for full contents insurance, ensure you value the contents for the cost to replace them, opposed to the actual value that you think they are worth. Emergency assistance Cover is provided for general property emergencies, such as failing electricity supplies and cooking facilities, plumbing problems, leaking roofs and guttering, and damage to doors and windows. Typical policies will provide parts and labour up to a specified cost, along with a 24-hour call out helpline number. This sort of insurance is most suited to landlords who do not live near their property and have not contracted their managing agent to provide such a service. It should also be noted that these policies only cover emergency call-outs and are not a general repair service required through lack of routine maintenance. Legal expenses insurance Problems can always occur with tenants and in many cases it is a change of personal circumstances such as job loss, accident or illness that will affect the tenants ability to pay rent or look after the property correctly. Resolving such situations will usually involve expensive legal costs, sometimes running into thousands of pounds and legal expenses insurance is generally recommended. Rent guarantee insurance These policies guarantee that rent is received regardless of the tenants personal circumstances or ability to pay. These policies are most useful for landlords who have a mortgage on the property and are relying on the rental yield to service the loan. Policies will often guarantee rental payment for periods of six or twelve months. Regulation It is always advisable to shop around for insurance and understand what each policy provides. Always ensure that the insurance provider is a member of the General Insurance Standards Council (GISC) and is fully regulated by the Financial Services Authority (FSA). Please note that this article is for information and guidance purposes only. With all financial matters you should seek professional advice with respect to your own specific circumstances. |
