Have you ever read a full insurance policy booklet from cover to cover? You wouldn’t be alone if you said no, but you sure wouldn’t be in a majority if you said yes.
Insurance is a minefield of legalese, definitions and exclusions. Not understanding your way around these could see you paying for a policy that doesn’t adequately cover you, equalling even greater losses should an incident occur.
So, should you spend your spare time becoming an insurance expert? The easy answer is no. Read this article for a simple no-nonsense guide to your insurance obligations as a landlord, and some expert tips to help you find the right cover.
What is Landlord Insurance?
This is a bit of a misnomer. There isn’t just one kind of insurance for landlords, there are actually quite a few. They can cover you for almost any property set up and almost any ‘peril’ (that’s insider insurance lingo meaning an event like a storm or a fire or a flood etc). While insurance companies will advertise that they sell landlord insurance, you’ll find that these are just different property insurances that are suitable for landlords. These types of policies can also come with additional coverages like loss of rent or landlord liability.
Insurance is worked out based on the risk of an insurable event happening. For instance, if your property is in an area with high crime it will be more expensive to insure against theft and malicious damage. The first step when buying insurance is to understand exactly what you want your insurance to cover and what you need it to cover from an obligatory standpoint.
Is Insurance Compulsory for Landlords?
While you may find some conflicting information online, there is no form of insurance that is compulsory for landlords… unless you have a mortgage. Mortgage lenders will often require you to have insurance before taking on tenants.
What Should my Landlord Insurance Cover me for?
Here’s the kicker. Lots of people opt for the basic package not understanding that you can request certain covers to be added or removed, thus affecting the cost and coverage of the insurance.
For instance, many standard home insurance policies also contain cover for ‘items damaged away from the home’ usually meant to cover valuables and electronics while outside of your property. If you don’t take those things away from home though, or you’ve already got separate insurances for these, you can ditch that part of the cover and save yourself some money.
Most people are familiar with standard buildings and contents cover for properties they own or rent, if you’re a landlord though, these standard policies won’t cover you. You will need to let any insurer know that you are a landlord renting your property to tenants to make sure you get the right cover.
The Basics – Buildings vs Contents
Buildings and contents insurance are the standard insurances that landlords usually start with.
Buildings is almost always applicable for a landlord. This type of insurance protects the bricks and mortar that make up your property (and anything that happens to be fixed inside). Sometimes it’s called fixtures and fittings insurance. In a tenancy agreement the landlord is responsible for the fixtures and fittings of the property, so it makes sense to get these insured.
Not all landlords will need contents cover. This covers the un-fixed contents of the property like sofas, soft furnishings, electronics etc. Some landlord specific buildings policies will offer coverage for a small amount of contents if they are provided by the landlord in a partly furnished home. For instance, white goods are sometimes covered under buildings on a landlord policy. If you’re renting out a fully furnished home, then you may want to find a landlord contents policy to cover any contents in your rental property.
When buying buildings or contents make sure you know exactly what’s covered and how buildings and contents are defined in the policy. Insurance companies will differ in what they cover and under what type of policy.
What are Buildings and What are Contents?
This question is trickier than it seems at first glance. A standard metaphor used as a quick explanation in the industry is this:
If you took the roof off a house and turned it upside down, anything that falls out is contents and anything that stays inside is buildings.
Depending on your insurer, there may be a few exceptions. The one that easily comes to mind is laminate flooring. In most cases, if the laminate is screwed or glued to the floor and is fitted below the skirting board it will be considered buildings. If the laminate is click together and isn’t fixed to the floor or under the skirting board it may be considered contents.
As a general rule of thumb, the upside-down house is a good metaphor, but if you have un-fixed items in the property it’s worth asking the insurer if they would be covered before you opt for your policy.
Insurance Coverage Explained
While buildings and contents are the most common forms of property insurance, there are extra covers you can add. Sometimes these are sold as separate policies but more often than not they are bolted on.
Some of the most common coverages have been outlined below. You can use this as a guide to help you determine what kind of cover you want.
This pretty much does what it says on the tin. Covers damage caused by accident. This is usually bundled in with buildings and contents insurance. Accidental damage often comes with separate limits and there can be some pretty wide-reaching exclusions under this cover. A common one is to exclude accidental damage caused by water.
This type of cover will allow you to make a claim if a tenant accidentally damages your property, but if the tenant damages your property on purpose this wouldn’t be covered.
You can often choose to have this cover excluded from your policy and this will reduce your premium, on the flip side you won’t be covered in the event of accidental damage.
As this is a standard coverage it’s a good idea to get to grips with the exclusions and limits to help you understand if it’s worth paying for or not.
Cover Away from Home
This is another type of coverage that is often bundled in with contents insurance. As its name suggests, it gives you a certain level of coverage for items that are taken away from the property.
If you’re a landlord the chances are you won’t need this, unless you envisage your tenants taking your contents outside. You almost certainly wouldn’t need this if you were just insuring the buildings and not the contents.
Aside from insuring your property and contents you can insure yourself against liabilities. This type of insurance will protect you from claims made by a third party. For instance, if the ceiling falls in on your rental property and a lot of your tenant’s possessions are damaged as a result, they may raise a legal claim against you. Landlord liability insurance can help with legal costs and compensation.
This type of cover often comes as standard in a landlord specific insurance policy, though you can buy it separately as well. You can also request to have it taken out of your insurance to lower your premium. However, it’s important that you consider this carefully before you do.
Mortgage lenders may require you to have landlord liability insurance, so if your properties are mortgaged check this out before opting to remove cover. Also consider, since the Homes Fitness for Human Habitation Act has come into force, tenants can more easily sue landlords for damage to possessions and compensation claims can be very expensive. As a landlord you are responsible for damage caused by your rental property.
Loss of Rent
You can add this optional coverage to quite a few different insurance policies. Make sure you double check the limits and exclusions as this won’t cover all reasons for loss of rent. This type of insurance usually covers the loss of rent if your tenants have to move out as a result of an insurable event. For instance, if there is a fire at your rental property and it’s no longer habitable and your tenants have to live elsewhere, you’ll be able to claim for the loss of rent while the property is uninhabitable.
This type of insurance can have monetary limits and time limits as well, so if you’re adding this to your policy make sure you understand what it does and doesn’t cover.
Legal Expenses Cover
This is sometimes bundled in as standard with landlord insurance. Its function is slightly different to landlord liability in that it covers legal expenses you may occur as a landlord. In some instances, it can help with the costs of evictions.
Home Emergency Cover
This is usually an optional coverage. It covers home emergencies like burst pipes or broken boilers. If you have this coverage, you’ll likely be given an advice line number to call. In the event of an emergency someone will be sent to the property to deal with any initial damage and to make the property safe. You’ll likely be charged an excess on this service and any other fees will then be taken care of by the insurer. This will also have its own set of exclusions.
Damage that is caused maliciously, such as by a burglar is generally covered as standard under both buildings and contents. In a landlord specific policy though, malicious damage caused by tenants is not usually covered. Remember, the insurer assesses the risks to you and your property in order to determine your premium and level of cover. If the property is continually let out, then the risk of a tenant causing malicious damage is always going to be higher than an insurer would like.
If you want cover against malicious tenants, you will likely need to purchase a separate insurance and potentially find a specialist insurer.
Tenant Default Insurance
This is an optional cover that you can add to your policy. It will usually cover you against rent arrears. It often comes with additional restrictions and limits. For instance, it may cover you up to a certain monthly amount and for a certain number of months. Sometimes there are additional conditions around this as well. Some insurers may require evidence that you’ve carried out an acceptable level of tenant screening before providing cover.
Tenants can only insure their own belongings and so they often end up with contents insurance with optional extras like accidental damage. Some tenant insurances also come with tenant’s liability insurance; this is meant to provide cover in the event that the landlords’ property is accidentally damaged by the tenant.
You can require your tenants to take out renters or tenants insurance. This needs to be written into the tenancy agreement, and you should make prospective tenants aware of this if you do include it.
If your tenant has adequate insurance cover it gives you an extra layer of protection against any of the things that can potentially go wrong.
Your tenants’ belongings aren’t covered by landlord insurance. Your insurer will only allow you to insure buildings and contents that you own.
Things you Should be Aware of Before Buying Landlord Insurance
Insurance policies aren’t unlimited. This was the biggest mis-conception customers had in the 8 years I was working in property insurance. Many customers would call expecting their damage to be covered no-matter what. Often, you’d hear a customer tell the advisor how many years they’d been paying their premium, and so they expected cover. It doesn’t work like that. No insurer offers unlimited cover, it’s just not cost feasible and some risks can’t be insured against.
When choosing your insurance coverage and deciding on an insurer make sure you understand the limits, exclusions, excesses and the perils covered by the policy you are considering. These will differ from insurer to insurer. Understanding how these things change or limit a policy can help you find the insurer with the best coverage rather than just opting for the cheapest quote.
Here are some of the things you should be looking out for before purchasing your policy:
The excess is an amount you have to pay before your claim will be settled. These are common to all insurance policies.
There may be more than one excess on your policy. For instance, if you claim for a phone the excess might be £50 but if you claim for a burst pipe in your property it may be £1000. Always check how much the excesses are for each peril the policy covers. It is possible to reduce the excess on most policies, but this usually increases the monthly or annual premium you pay. It’s also possible to increase the excess in order to lower the premium, but if you do this, be aware that in the event of a claim you will have to pay the excess.
If the claim is less than the excess, your claim will be declined, but it is usually still recorded as a loss or declined claim on your insurance which may impact any no claims bonus you have. The lesson here is don’t claim for something that will cost less than your excess to replace.
Limits and Special Limits
I’ve said it before, and I’ll say it again. Insurance isn’t unlimited. All policies have a general limit. Sometimes this is per claim and sometimes for the whole policy.
For instance, a contents policy that has a limit of £10,000 will usually pay out up to £10,000 for each and every claim. If the limit is aggregated that means you can’t claim more than £10,000 for the life of the policy.
Aside from the policy limit, there may be other special limits in the policy. Most policies will have a ‘single item limit’ that will be the limit the insurance will pay for a single item. If you want to insure any single items that cost more than this limit to replace, you will need to take out additional cover. For instance, if there is a single item limit of £3000, and you want to insure a ring that is worth £4000, you will need a separate level of cover for your ring.
There may also be limits per peril. For instance, under the theft peril you may find there is a different limit for items stolen from the garden and outbuildings than for items stolen from inside a property.
An insurer can’t cover every risk out there. For a time, the most famous insurance exclusion was for ‘Acts of God’, things that were seen to be events outside of human control like natural disasters. Many exclusions on modern policies are far more practical, but you may still come across the occasional Act of God exclusion.
Exclusions are usually listed clearly in your policy document and it’s worth reading through these before deciding on an insurer, they will differ from policy to policy.
Some of the most common are:
Pre-existing conditions – This prevents you from claiming for any damage or incidents that occurred or that you knew about before you took the policy out.
Wear and tear – Anything that happens over time as a result of normal wear and tear is not usually covered.
Damage not resulting from an insurable event – If the damage you claim for has happened over time and not as a result of one of the perils listed in the policy document it won’t be covered. For instance, if your property has been damp for months on end – it probably won’t be covered. If you’ve had a storm and water has come in as a result of the storm, then it probably is covered (provided the storm in question meets the definition of storm in your policy booklet).
In all instances, where an insurable event happens, you need to tell the insurance company as soon as is practical. There may also be guidelines for this in your policy document. This is because the insurance company will want to mitigate any damage as soon as possible. If you leave the damage and it gets worse and there’s no good reason for the delay you might find a claim declined.
When you are first looking for an insurance policy the excess and total insured limits are relatively easy to spot. Single item limits and exclusions are harder to find as they are usually listed in the policy booklet and policy schedule that you get after you’ve taken the insurance out.
If you call the insurer to ask about the policy, they will be able to tell you about any policy specific limits and exclusions.
Remember, after buying insurance there is a 14 day cooling off period. In this period, you can cancel your insurance. It’s there to give you a chance to read over the full policy before committing to the contract. Make sure you use the 14 days wisely to double check your level of cover before committing to a policy that may not be quite right for you.
If there’s anything you don’t understand in your policy, particularly in relation to excesses, exclusions or endorsements, look them up online. There are plenty of guides out there that can talk you through their meaning.
When finding a new insurer ask as many questions as possible to make sure you’ve got the cover you need before getting to the stage of receiving a policy booklet.
Make sure you aren’t insuring the same thing twice. While relatively rare, it happens and it’s very messy if it then comes to claiming, not to mention, it is a waste of money. Some insurance policies will automatically renew, make sure you know what happens at the end of the policy so you can prepare. In most cases people end up with two insurance policies when they take out a new policy not realising their old policy has auto renewed.
Is Landlord Insurance Worth it?
And so, we come to the age-old question. Is it worth it? If you don’t legally need insurance, why get it?
Apart from the mortgage, if you own your property outright and don’t intend to finance it, it’s tempting to think you don’t need insurance. After all, insurance costs money. However, if you have an insurance policy, and you need to claim on it, you’ll be a lot less out of pocket than if you didn’t have it.
The best way to weigh up an insurance policy is to ask yourself if you could afford to cover the damage yourself. If your property caught fire could you afford to re-build it and replace anything that was damaged in the fire? If the answer is no, then you need insurance. If the answer is “yes, but I wouldn’t like to”, you need insurance.
In my opinion the best kind of insurance is the kind you never have to claim on. In an ideal world, nothing goes wrong and you never need to claim. In the real world there are things outside of our control and that we are unable to predict and when they do happen having insurance can be a huge relief financially and emotionally too.
In my time working for a huge insurance company I audited thousands of claims. When you’re dealing with a broken TV or a stain on the carpet it hardly seems worth paying the excess and losing any no claims bonus you have. When it comes to large scale damage like flooding, fire, burst pipes etc. it’s a no brainer. Some of these large-scale claims can run into the hundreds of thousands of pounds to put right.
Where insurance really comes into its own is usually the aftercare in the event of a claim. If you’re with a good insurer they will act fast, ensure your tenants’ safety first and the full restoration of the property after.
At the end of the day, can you put a price on peace of mind?