Insurance Types

Don't take unnecessary risks:

• The risks associated with letting or renting property can be substantial and are often quite different from those experienced by owner occupiers.
• It's so easy to overlook the importance of having the right insurance cover. Landlords sometimes rely on normal household cover, and tenants don't bother with insurance at all -  both are taking unnecessary risks.
• LandlordZONE prides itself on being able to provide you with the right information and to source dependable and value for money insurers.

Third Party or Property Owner's Liability:

First and foremost the landlord should be concerned about the substantial risks now posed by third party liabilities. In the litigious society in which we now live, anyone operating a business, and a landlord is certainly doing that, can easily find themselves on the wrong side of a lawsuit which can seriously damage your wealth, and probably your health as well! You only need to watch day-time TV for s brief spell to see how many law firms are touting for the business of anyone who has the slightest inkling of a claim.

Make sure your policy includes Property Owners Liability up to something like £5 million of cover. It is vital that you are covered in this way against death, injury or damage to individuals on or near your property, for example: tenants, visitors and guests, meter readers, postmen etc. Local authorities and Universities will normally specify a minimum amount of cover needed when you house housing benefit tenants or students.

Ironically, it's this third party liability, the greatest risk to the landlord, which is often overlooked!

Employers Liability:

As a small time or part-time landlord you might think that Employers' Liability is the last thing you need - you'd be wrong!  Usually buildings policies will provide some kind of Employers' Liability cover. This covers claims for death or injury to anyone you employ at your property, for example you may employ, on a casual basis only, a gardener / handyman, a property repairer or a painter and decorator.

Buildings Cover:

The next priority, once you have taken care of third party risks, is to protect your investment. You need to cover your building against all insurable risks to the full replacement cost, including the cost of clearing the site after complete destruction and all professional's fees.

Remember, the replacement cost is not necessarily the same as the market value of the property or the price you paid for it! If you under insure your building you could fall victim to the insurers averaging - you will not get the full amount of any claim (see Insurance Principles) so work out the replacement value accurately.

You can get an accurate insurance valuation if you go to the Association of British Insurers (ABI) website and their Building Costs Calculator for home owners. Better still and particularly in the case of unusual properties such as old, listed, conservation area, thatched or other specialist properties get a professional insurance valuation done by a chartered building surveyor (see Directory for Chartered Surveyors) In the case of commercial property it is always advisable to get a professional valuation.

Most insurers will index link the annual premiums to the Retail Price Index so that you maintain an accurate insurance value over time, but of course this is all dependent on you getting the value right in the first place.

It's important to remember to get permission in writing from your mortgage lender, your insurer and you landlord (leasehold property) before you let your property to tenants. This is very important as your insurance cover could be nil and void if you fail to do this.

Perils Covered: The perils usually included in most popular building risks policies include: Burglary and Theft, Bursts and Water leaks, Fire, Smoke, Storm and Flood, Subsidence, Vehicle Impact, Aircraft Damage, Lightening, Explosion and Malicious Damage.

Loss of Rent: Most specialist landlord policies will cover loss of rent in the event of a major catastrophe where the building is rendered uninhabitable. See also Rent Guarantee below.

Contents Insurance:

Unlike owner occupied properties, landlords do not normally need full contents cover. Contents cover on a typical owner occupied household could be anything from £35,000 and upwards. A tenanted property would typically involve a much lower figure as the tenant is responsible for much of the contents. This is particularly so when the property is let un-furnished or partially furnished - an increasingly popular trend.

Limited Contents cover would typically be for in the region of £10,000 to £15,000 and would cover landlords for the loss or damage to items supplied such as carpets, furniture, pictures, ornaments, curtains and blinds, electrical equipment provided such as Hoovers, TVs, light fittings, and kitchen equipment such as fridges, washers, dryers, dishwashers etc on a new for old basis.

Full Contents cover may be more appropriate where the property is let on a fully furnished basis.

Where a house is let fully furnished, especially where this is the landlords main residence with valued contents, then full contents cover is needed. The landlord should also complete a full inventory of contents, along with photographic evidence and schedule of values. The sum insured should be adequate to cover the replacement value of the contents in total.

Specialist Lettings: Some tenants carry higher risks and some insurers are reluctant to cover such risks. For example, students and Housing Benefit tenants or properties converted for HMO (House in Multiple Occupation) The specialist insurers we recommend will be able to advise on the best options for insuring these types of risk.

Emergency Assistance Insurance:

This normally covers a contractor's call out charges, labour charges and parts and materials up to, for example, a maximum of £600 (including VAT) for each emergency in connection with:

• Plumbing problems
• Heating system problems
• Electrical equipment problems such as a broken fridge or freezer
• Security of doors and windows
• Roofing problems
• Drains and sewer blockages
• Down pipes and guttering
• Electricity supply problems
• Lost keys

This type of cover can be very useful where the landlord does not use a managing agents but lives some distance away from the property.

Rent Guarantee Insurance:

If you have done your tenant screening and tenant verifying properly hopefully you won't have problems with your tenant paying rent. However, even with the best of intensions tenants can have difficulty paying their rent through no fault of their own. Illness or sudden redundancy can stick at any time. If you are unlucky enough to get saddled with a bad tenant you could be in for a longish period of legal battles until you obtain possession through eviction.

Rent Guarantee insurance therefore is an excellent and relatively inexpensive (3 to 5% of rental) way to minimise your risk and is especially valuable for landlords with perhaps only one property, which may be heavily mortgaged. Landlords with a portfolio of properties can usually stand a period of non-payment, whereas a single property owner may not be able to maintain mortgage payments in these circumstance, putting the whole investment at risk.

Rent Guarantee insurance normally only obtainable once you have comprehensively verified your tenant - see Tenant Verify

Legal Expenses Insurance:

Do your job well as a landlord or agent 95% of all your lettings will be trouble free - screening tenants carefully is the key. However, no matter how careful you are, it is inevitable that at some time or another a problem tenant will slip through the net. This is the case even if, as a landlord, you use a professional agent.

Sometime the difficulty is outside the ten's control, sometimes it is not, but in any event the outcome is usually the same - your are forced to spend your hard earned cash on legal fees. You will very lucky if your possession proceedings take anything less than 4 months and costs are as low as £500. More likely it will take at lease six months and your costs can be above £1,000 and that's not counting loss of rent in the meantime and any damage the tenant has left you with.

A relatively small annual sum spent on landlord's legal expenses insurance can cover your for up to £50,000 worth of legal fees.

Tenant's Insurance:

In the case of residential property it is the landlord's responsibility to insure the building and her contents, but this does not include the tenants' contents or accidental damage to the landlord's property, which would otherwise come out of the security deposit.

Many tenants just don't think about this with all the other expenses and tasks they are involved with when going into a rental - first month's rent up front, one to two month's rent as deposit, an administration fee, removing and removal expenses, buying new furniture and fittings etc. In fact few tenants are adequately covered in this regard and most have no cover at all.

With a good tenants insurance policy and cover starting from as little as £5,000 upwards the tenant is insured for, for example:

• Burglary and theft of own possessions
• Damage to the property caused by the tenant, such as allowing the bath or shower to overflow or leaks from the washing machine - this type of thing can cause very expensive damage in upper floor flats where water cascades through the building.
• Accidental or malicious damage to the landlord's fittings, equipment and furnishings etc.
• Loss of personal possessions through the normal building perils - fire, flood etc.
• The cover often covers personal possessions such as mobile telephones when not at home, as would a normal owner occupier's policy.
• Accident or injury to guests or visitors
• Replacement locks, keys and locksmith charges in the event of lost keys.

Where the tenant has high value items such as cameras and computers additional cover may be required and the insurance company may stipulate additional security measures such as stronger locks on doors and windows in some cases.

The policy protects the tenant's security deposit against all accidental damage to the landlord's property for a surprisingly inexpensive premium. For example, a serious stain on a light carpet may mean the carpet's total replacement which would usually take the whole of the tenant's deposit. With insurance cover the tenant's deposit is safe.

In the case of business or commercial property it is usual practice for the landlord to arrange for the building insurance and to collect the insurance premiums from the tenant.

The landlord's insurance will also usually include public liability insurance and employer's liability insurance, if she employs trades people from time to time, even on a casual basis.

It is the business tenants responsibility to take out business insurance which will include contents cover as well as all the usual business risks.

Landlord Letting Show - Barbican London - 13th -14th Mar 2012