Having insurance is not a legal obligation for landlords, except in the case of buy-to-let mortgages, in which it is almost always required, but it is highly recommended that they get one. Being a landlord entails risks that are not present when living in your own home, and in the event of a legal claim resulting from a tenant getting hurt, standard home insurance may not provide coverage.
The conventional home insurance policy generally does not cover the risks associated with rental activities, and if a landlord has a mortgage, their lender may require them to take out insurance before renting out the property. The lender may also need written permission from the landlord before renting out the property, and failure to get this may violate the terms of the mortgage.
Landlord insurance usually covers the following: non-payment of rent, damage to the property by the tenant, loss of earnings or rehousing costs in case the tenants need to move out following an insured event, and liability for accidents in the property causing injury. These covers are essential for landlords to safeguard their financial future and protect their properties.
There are various types of insurance plans designed for landlords, which this article will cover. Be sure to compare different insurance options first before choosing one. Aside from the standard home insurance policy that may be lacking in most aspects, here are some landlord insurance plans for you to consider, whether you are a professional or an accidental landlord:
Landlord Liability Insurance
As a landlord, having liability insurance protects you from paying compensation if something goes wrong with your property that results in injury or damage to a tenant or visitor. These types of claims can be substantial, so it is crucial to have this coverage. The insurance will cover you against the cost of the claim and legal expenses in case of incidents such as a tripping hazard or electrical malfunctions.
While liability insurance is not a legal requirement in most cases, some local authorities require commercial landlords to have a minimum level of coverage. It may be possible to include this coverage in another insurance policy. Regardless, having liability insurance offers peace of mind in case a tenant or visitor decides to sue you due to an incident that occurred on your property.
A typical residential building insurance policy will not cover any losses or incidents that may occur when you rent out your property, which is why buildings insurance is crucial. This insurance coverage will provide protection for the building or structure against various risks such as accidental damage, lightning, fire, explosion, earthquake, storm, flood, escape of water, and more, but not its contents.
Buildings insurance typically covers the built-in fixtures and fittings such as kitchens, bathrooms, and boilers in most cases. To ensure that your property is fully covered, it is important to confirm that the insurance policy covers the full rebuilding cost, which includes professional fees and site clearance expenses. For coverage of the contents, consider landlord contents insurance, which will be discussed further in this article.
An expert can assist in determining the rebuilding cost, which is usually lower than the market value of the property. With this type of insurance, you can have peace of mind knowing that your property and investment are protected.
When considering a buy-to-let mortgage, be aware that they often come with higher interest rates, fees, and a larger deposit requirement compared to personal mortgages. And almost always, they require insurance plans, specifically buy-to-let insurance, just as you are legally required to report your rental income through Let Property Campaign if you haven’t registered for self-assessment yet.
Buy-to-let insurance helps you protect yourself against potential claims made by tenants for injuries sustained on the property for which you are held responsible. Additionally, it provides coverage for unexpected incidents like vandalism, fire, or flood.
Your personal mortgage provider may not offer the most favourable options. As a property investor, it is important to ensure that you can handle any unfortunate events that may affect your rental income or result in additional costs, and having proper insurance coverage is one way to do so.
Whether buy-to-let insurance is a requirement or not, once you have determined that a buy-to-let property is the right choice, make sure to shop around to find the best deal. Evaluate its coverage first and seek professional advice before making a decision.
Whether or not to include contents insurance as part of your landlord policy is dependent on the nature of your rental property.
If you are renting out a furnished property with upholstered furnishings or free-standing appliances such as fridges and washing machines, it may be wise to consider insuring these items. In the event of a fire or flood, replacing these items could be costly, and having contents insurance will provide peace of mind in the case of having to make a claim.
Before getting contents insurance, ensure that the excess is not too high so that it will be worth making a claim if needed. Keep in mind that a landlord contents insurance policy does not cover normal wear and tear of the insured items and does not protect your tenants’ belongings. Encourage your tenants to have their own insurance instead.
Loss of Rent/Rental Guarantee Insurance
Loss of rent insurance provides compensation if your rental property becomes temporarily uninhabitable due to an insured incident, such as fire or flood. This type of insurance should not be mistaken for rental guarantee insurance, which covers losses due to non-paying tenants.
Rental guarantee insurance, also known as tenant default insurance, pays out if your tenants don’t pay their rent, protecting you from loss of rental income. Unoccupied insurance offers similar coverage during periods of no tenancy. Both scenarios can often be covered in a single policy.
Tenant default insurance provides coverage for landlords in the event that tenants fail to pay rent for two consecutive months. This insurance can pay out up to eight months’ worth of rent in such situations. To remain eligible for coverage, you should perform credit and reference checks on tenants at the start of the tenancy agreement.
To make the best decisions on which insurance coverage to add to your policy, reach financial advisors from Legend Financial. We have been working with a lot of landlord clients on a daily basis, especially helping with their taxation, accounting, and legal obligations. Reach us today!