Are you a landlord? Why you need buy to let insurance
When you buy a property and rent it out, you become a landlord (congrats!) and should protect yourself and your investment against the risks that come with renting. This is what buy to let insurance does: it protects landlords and their rented property. It is not required by law, but it is definitely a wise idea. Cover can be very simple or really extensive. Naturally, how much you choose to cover affects how much your landlord insurance costs. Read on to find out more.
Buy to let insurance vs landlord insurance: what’s the difference?
Let’s clear one thing up before we start: buy to let insurance and landlord insurance are the same thing. The terms are interchangeable and refer to the same type of home insurance policy, meaning a policy that is specifically designed for people who lease/rent out their property.
For some reason (and a bit confusingly), certain insurance providers refer to it as buy to let insurance and others as landlord insurance. When comparing insurance policies, you may also see landlord buy to let insurance and buy to let landlord insurance. Just remember, these all mean the same!
In this guide, we are going to use both terms: buy to let insurance and landlord insurance.
Residential landlord vs commercial landlordResidential landlords rent houses/flats for people to live in. Commercial landlords rent property that is used for commercial purposes, e.g. an office space or a shop premises. Residential landlord insurance (buy to let insurance/landlord insurance) and commercial landlord insurance are separate insurance policies and cover different perils (risks). This guide is aimed at residential landlords.
What does landlord insurance cover?
Landlord insurance covers your property if it is rented. Standard home insurance does not protect against all the risks that come with renting. Buy to let insurance is more suitable because, on top of protecting your property from flood damage and theft, you’re also covered in the event of damage caused by your tenant.
Like all home insurance policies, buy to let insurance comes in different shapes and sizes. What is included in a standard policy and what is an optional extra will vary from one policy to the next. Let’s have a look at what landlord insurance can cover.
Buy to let buildings insurance is an essential part of landlord insurance that covers you to repair or rebuild your property if it gets damaged or destroyed in something like a fire or a flood. It only covers the structure of your property and some, if not all, permanent fittings. It does not cover any furnishings.
We advise all landlords to have this type of cover as a minimum form of landlords insurance.
Landlord contents insurance covers any furnishings that belong to the landlord - such as a sofa or TV - from damage, destruction, vandalism and theft. It is not essential, but if you are renting out a furnished property, it’s a very good idea to have it.
If you are renting out a partly-furnished property and provide items such as a fridge, freezer, washing machine etc., contents insurance is still worth considering as it will also cover these goods. It can even protect your hand-picked carpet from the dreaded spilt glass of red wine.
What about tenants’ possessions?Landlord contents insurance does not cover a tenant’s personal possessions. If the property is unfurnished and the tenant buys and fills it with their own furniture, none of it will be covered by the landlord’s insurance policy. Renters need to take out tenants insurance to make sure all of their valuables and anything they buy for the property are covered.
If the worst happens and your property becomes uninhabitable, your renters will need to find somewhere new to rent, meaning you will lose them as tenants. However, if your buy to let insurance includes alternative accommodation, there is no problem.
While your property is being repaired or rebuilt, your tenants will be housed in accommodation paid for by your insurer, meaning they will be looked after, you retain your tenants and everyone is happy!
For many landlords, their rental income makes up a big part of their monthly income. Even if you can get by without it for a few months, you would still prefer not to lose that money, wouldn’t you? This is where loss of rent insurance comes into play.
If your property becomes uninhabitable because of an insured event (fire, flood, earthquake…) you are covered for the rental income you will lose while it is being rebuilt or repaired. Subject to the conditions outlined in your policy (make sure you read it closely), your insurer can pay your rental income during this time.
Renting out property always comes with an element of uncertainty: how can you be 100% sure that your tenant is going to pay their rent every month? Rent guarantee insurance (RGI) protects you against this uncertainty.
If, for whatever reason, your tenant refuses to, or cannot, pay the rent, RGI covers the unpaid rent. The terms and conditions vary from policy to policy, but in most cases you cannot claim until you have given your tenant an eviction notice and rent is overdue by one calendar month.
Loss of rent vs rent guarantee insuranceWhile loss of rent insurance and rent guarantee insurance both cover landlords against loss of rental income, they are not the same thing. Loss of rent insurance covers you if your property becomes uninhabitable and you cannot rent it out. Rent guarantee insurance covers you if your tenant cannot or will not pay the rent.
Legal expenses cover - also known as legal fees insurance - covers any legal expenses that may crop up. For example, if you need to evict your tenant but they refuse to cooperate, the legal fees to follow through with eviction can get quite expensive. With legal expenses cover, these types of fees are covered.
This cover usually comes with rent guarantee insurance, but it can also be added to your policy separately.
Let’s face it, tenants can cause damage to your property and anything in it. This damage can be intentional or accidental, but either way it’s a good idea to have it covered. If your tenant accidentally drills through a pipe when doing a bit of casual weekend DIY, or purposefully pulls a radiator off the wall, this cover will ensure you don’t have to front the cost to repair it.
When something breaks, tenants expect it to be fixed quickly. Home emergency cover makes sure that any domestic emergency gets dealt with as quickly as possible, no matter what time of day or night it happens.
Emergency cover can be added to a landlord insurance policy, but sometimes it might be worth considering a separate home emergency cover policy to make sure you’ve got everything covered, including heating, plumbing and electrics. Keep an eye out for the details here; in a lot of cases boiler cover is not included and needs to be taken out on its own.
Accidents happen and a tenant can get injured while at your property. Unfortunately, they may then try to sue and claim compensation. Property owner’s liability insurance can cover the fees for legal action and any compensation you may need to pay.
If you employ anyone to work at your property, such as a cleaner, gardener, handyman, or if anyone comes into the property to fix something minor, like a plumber unblocking a drain, employee liability insurance will cover you if the person gets injured while at your property.
For a number of reasons (you’re waiting for a tenant to move in, you rent to students and it's the summer holidays, you’re installing a new kitchen) your property can be left empty. It’s important to make sure it is still covered at this time.
Landlord insurance can be more flexible than regular home insurance when it comes to unoccupancy cover: providers sometimes offer cover for longer periods of unoccupancy in their base policies e.g. 60 or 90 days. However, landlord insurance is still not designed for long-term unoccupancy so you may need to take out a separate unoccupancy property insurance policy if your property is going to be left empty for a while.
Even if the period of unoccupancy is covered in your policy, you should still inform your insurer when the property is empty.
Will loss of rent insurance cover me while my property is unoccupied?Loss of rent insurance will only cover you if you property is made uninhabitable because of an insured event, such as a fire or flood. If you property is left unoccupied for other reasons like the ones discussed above (waiting for a tenant to move in, kitchen renovations etc.) your insurer will not cover the rental income you lose during this time.
- Buy to let buildings insurance
- Landlord contents insurance
- Alternative accommodation
- Loss of rent insurance
- Rent guarantee insurance
- Legal expenses cover
- Malicious and accidental damage by your tenant
- Home emergency cover
- Property owner’s liability insurance
- Employee liability insurance
- Unoccupied property insurance
How much is landlord insurance?
According to the insurance company Alan Boswell, the average cost of landlord insurance in the UK in 2018 was £217, but truth be told, landlord insurance premiums can vary greatly from one landlord to the next as they are based on many different factors, including:
- The cover you have: do you just have basic buy to let buildings insurance or have you added rent guarantee insurance to your policy? The more cover and add-ons you have, the more the insurance will be.
- The level of cover you have: how much is your house and contents worth? If you have furnished the property with expensive items, the replacement value of these will be high, increasing your insurance premium.
- Your rebuild cost (sum-insured): the more it will cost to rebuild your home from scratch, the more your insurance premium will be.
- Location of your property: your postcode will affect how much your insurance is too. Insurance for property in London, for example, can be more expensive than elsewhere. Is your property in a flood risk area? This can also raise your premium.
- Type and age of property: is your property a new three bed detached house or a 10-year-old one bedroom flat? The size, number of bedrooms, type and age of the property all influence the price of landlord insurance.
- Your insurance history: if you have made a lot of insurance claims in the past, even if they were with a different provider, your premium will be more expensive.
- Type of tenant: who your tenants are can increase and decrease your insurance premium.
|Professional(s)||Working professionals are the most popular type of tenants as they are earning a living, insurers (and landlords) have a greater guarantee that they will pay the rent.|
|Families||Families that rent offer a good level of certainty as they often wish to rent for longer periods.|
|Family members||Renting to family members can be really convenient for landlords and offer greater certainty that rent will be paid.|
Renting to students is often described as high risk but high reward.
The risks: students are financially less stable and have a greater reputation (deserved or not) of breaking things.
The rewards: students are typically unfussy and, as they usually rent in groups, landlords can return a greater profit.However, due to the risks, some insurers will not provide landlord insurance if you rent to students. Some providers also offer specific student landlord insurance.
|Multiple occupancy||Houses of multiple occupancy (HMOs) - homes where tenants who do not know each other rent separate bedrooms - can give landlords good profits, but having more tenants means there’s a greater risk of the full rent not being paid.|
|DSS||A DSS tenant is a renter who receives housing benefits from the council. Out of all tenants, they are seen as the most likely to miss rental payments because they tend to be on very low incomes and receive universal credit every four weeks instead of every calendar month. As a result, some insurance providers will not cover you if you rent to DSS tenants.|
Multi property landlord insurance
If you have multiple rental properties, you can take out multi property landlord insurance, sometimes called a portfolio insurance policy. This means you have one landlord insurance policy for all of your properties.
With one single policy, everything is a bit easier: you have one renewal date instead of a different one for every property; you have one point of contact; you save time as you don’t need to search for a different polcies and, it saves you money!
As with buy to let insurance for one property, the cost of multi property insurance varies depending on the level of cover, type of properties, type of tenants etc., but a single policy will work out cheaper than lots of separate ones. Plus, many insurance providers offer discounts when you add properties to your policy.
Buy to let insurance providers in the UK
Most insurance providers in the UK offer buy to let insurance, so it’s a good idea to shop around and compare different deals. We have outlined a few of the policies offered by some of the UK’s biggest insurance companies.
Insuring millions of people in nearly 60 different countries, AXA insurance is one of the biggest insurance companies in the world. With AXA landlord insurance, you can get up to £10 million property owner’s liability cover and there is 0% interest on installments if you choose to pay monthly. Cover to re-house your tenants if your property is uninhabitable is also included as standard.
LV is one of the UK’s best known insurance providers. Currently you can get a 25% discount on your landlord insurance if you are a new customer, and a 10% discount if you already have home or car insurance with them. Their base landlord insurance policy includes cover for accidental damage, vandalism and theft by the tenant, and they have an extensive list of extras you can choose to add-on.
Alan Boswell Group
The Alan Boswell Group is a consortium of independent insurance brokers and financial planners. Unlike a lot of landlord insurance policies, their buy to let policy includes cover for malicious damage caused by the tenant as standard. They will also cover your property if it is left empty for up to 90 days and offer £5 million property owner’s liability cover.
Legal and General
Legal and General is a London based financial services company; insurance is just one of the many financial products and services they offer. Their landlord insurance includes up to £40,000 cover for loss of rent or alternative accommodation, up to £500 home emergency cover and up to £2 million property’s owner liability cover all as standard.
Best known for car insurance, Direct Line also offers lots of different types of insurance, including home insurance and landlord insurance. Voted the Most Trusted Landlord Insurance Provider at the Moneywise Customer Service Awards (2018), they offer up to £10 million public liability cover and optional rent guarantee insurance that will cover up to £25,000 per claim. There is also 0% interest on installment payments during the first year.
All material on this page and the selectra.co.uk website is for information purposes only and does not constitute any form of financial advice. Selectra.co.uk is not responsible for any consequences that might arise from your use of the information provided.