Landlord Insurance Advice:

 

What is landlords insurance?
Landlords insurance is a product tailored to the needs of a landlord. Additional items such as Loss of Rent, Rent Default and Tenant Damage, and damage to building or landlord's furnishings and fixtures are covered by landlords insurance policies.

The financial rewards of letting your home or a flat can, at first sight, appear to be outweighed by all the regulations you need to comply with and by the various risks involved.

However, this is not necessarily the case: a good knowledge of what you are doing, good management and a good insurance package will take care of most eventualities.

There is no law which says you must carry insurance as a landlord, or as a tenant, but you'd both be very foolish not to. If you have a mortgage your lender will almost certainly insist that the property is properly insured. 

What should I look for in a policy?
For most people, a house or an investment property is the most expensive possession they will ever buy. So it makes sense that you take the time to carefully consider what your property is worth and what it would cost to replace.

The biggest problem people face with an investment property isn't at this stage of the process. It's when you come to make a claim. So be clear before you start on exactly what it is you want your policy to cover you for. Ask yourself these simple questions:

• What is covered?
• What isn't covered?
• Will the insurer replace items with new goods, or just pay the depreciated value?

Read the full policy wording before making a commitment. If there is anything you are not certain about, seek clarification. Remember, an insurance contract is a legally binding contract.

What types of policies are available?
Defined Events/Listed Events
The most basic landlords policy will cover you against loss or damage caused by something that has been listed and agreed by the insurer. You will find all the events that you are covered for, are listed in the policy.

Accidental Damage
This is a far more thorough type of policy than a Defined Events policy, in that it will normally cover you against any accidental damage to the structure or contents of your home. Because it is less predictable, an accidental damage policy costs more than a Defined Events policy. Certain events that are not covered are listed in the exclusion section of the policy.

Each of these policies covers the building itself and your household property. Make sure your policy defines "building" and "contents". It should cover you for the cost of repairing damage to the building structure itself. That ranges from the loss of a roof in a hailstorm or windstorm, the damage caused by a falling tree or the impact of a vehicle, to such events as fire or earthquake.

What are the typical features of most insurance policies?
There are distinctions between policies. For example, while buildings are normally sold with fixtures such as carpets and curtains, these are insured as contents. But items like fixed heaters are included in the building insurance. Let's look at some typical features:

New for old
This simply means that any of your insured property which is stolen or damaged will be replaced by the insurer or repaired. If it's lost or destroyed, the insurer will replace it with a new item of the same type. Some policies put age limits on the replacement, and remember that some items are so old they simply can't be replaced. In that case, make sure you have an accurate assessment of their value.

Indemnity
The amount the insurer will give you for the depreciated value of the item claimed for.

Fusion/Electrical Breakdown
The loss of household electric motors to power surges through the fuse box or a failure in the motor itself is usually covered, as long as the appliance isn't so old that the motor could have fused through being worn out. Check your policy to see what age limit the insurer places on electric motors.

Glass breakage
You would be surprised how often this clause comes in handy! Some insurers have negotiated agreements with glass repair services so their customers have swift access to a repair service. It may add marginally to the cost of your policy, but if you have a lot of glass and a risk factor - like lively children who love playing football or cricket - it's worthwhile having.

Excess
Insurers often require policyholders to pay a set amount of money as your share of the claim. Some insurance companies will negotiate a higher policy excess and reduce the premium accordingly.

Liability
Your insurance policy will contain a section on liability. This is very important, because it protects you as the owner of the property against any claim made by a third party who may have suffered injury or death to themselves, or damage or loss to their property, as a result of your negligence, while they are on your property.
A tip: If someone indicates they're going to sue, don't admit liability. Contact your insurer and let them handle it.

Policies are now available to cover almost every conceivable eventuality, from a slate falling off your roof and injuring a passer by, to tenants damaging your property, or you having to re-house tenants following a fire or flood.

It is important to realise that normal household insurance policies are not suitable for letting. You need a policy which is specifically designed for letting and one which covers several additional risks.

If you are letting your property your mortgage company will want to know about it and will insist on certain conditions, such as appropriate lettings policies. 

Don't forget, it's easy to obtain insurance cover by not disclosing all the material facts (such as the fact that you are letting the property) but, in effect, you are not insured. If anything happens the insurance company will investigate and will almost certainly refuse to pay out.

Landlord's policies for residential letting are now very competitive and there is little difference in cost from normal household policies. Many packages are available ready made and off the shelf from very reputable high profile insurance companies and can be purchased quickly and conveniently on the Internet.

As more and more people let properties, policies have developed to cater for the landlord's needs and cover can often be extended just as required, for example:

• Building and landlord's contents
• Public and occupier liabilities
• Loss of rental and the cost of re-housing your tenant in the case of a fire or a flood
• Cost of hotel accommodation if your tenant refuses to leave on time
• Loss of rent if the tenant does not pay 
• The cost of evicting a bad tenant
• Malicious damage and vandalism by tenants and others
• Emergency repair services
• General legal costs etc

Admittedly some tenant groups are more difficult to insure, though some companies will offer packages for these groups still at competitive rates:

• Students
• Tenants who are not working

It is absolutely vital that let property is properly covered for certain risks. These are usually specified in the lease:

• Buildings insurance
• Public Liability Insurance
• Loss of Rent in the event of damage or destruction

These are the usual types of risks covered and these may be extended to include additional risks such as vandalism and wilful damage.

With shops and offices it is often a requirement that tenants cover plate glass, a risk which is often included in their shop owners or business risks policies.

It is usual practise for the landlord to arrange the insurance and collect the premiums from the tenant annually as service charges. This will be specified in the lease.

Where several tenants occupy one building, which is covered by one insurance policy, the lease will specify the apportionment of insurance costs amongst the tenants. This is often calculated on the basis of floor area or rateable values etc.

There may be a provision in the lease to cover suspension of the rent payments or even the ending of the tenancy in the event of damage or total destruction. Landlords and tenants need to be clear about what these provisions are.

In the event of disruption to trading and an insurance claim there may be important questions as to how and when repairs are to be carried out and how the insurance money is to be spent - the lease should be clear on these aspects.

To ensure that the building is fully covered in terms of its replacement value (remember insurance companies will average in the case of underinsured claims) a surveyor's insurance valuation will be required from time to time. The lease may provide for the cost of valuations to be recovered from the tenant.

Where there has been underinsurance who makes up the difference in replacement cost - the landlord or the tenant? This is a difficult one and ideally should be thought about very carefully at the outset. It is in the tenant's interest just as much as the landlord's that the building is insured for its full replacement cost.

Problems often arise where tenants feel that landlord is not going for the best value (cheapest?) insurance cover. In practice the landlord may be using one company for several properties by way of a block policy, which usually works out cheaper overall.

Landlords will often use insurance companies which they have found to be best in terms of overall service not necessarily the cheapest - it's only when you process a claim when you find out the merits or not of a company.

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