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Landlord Insurance – what you need to know

Letting your house to tenants can be a sound financial decision, but that doesn’t mean it comes without risk. New landlords are often nervous about either the costs they may have to cover or the safety of their property. That’s where landlord insurance comes in.

Landlord insurance can protect you against a wide range of potentially costly issues associated with the letting out a property. As well as covering the property itself, it can also be extended to protect against loss of earnings, damage to contents, and other unforeseen circumstances.

Landlord Insurance - What you need to know

So what does landlord insurance cover?

A good landlord insurance provider will be able to build you a policy tailored specifically to your needs. Within that policy, there may be a number of different types of cover. Key landlord insurance covers include:

  • Buildings insurance, to protect the property itself
  • Contents insurance, which covers items you own that are in the property
  • Loss of rent, to protect you against lost earnings in the event that your property becomes uninhabitable
  • Legal expenses, which covers legal fees associated with your property
  • Tenant default insurance, which can protect you if your tenants fail to pay the rent
  • Accidental damage cover – although note that this may be included in a standard landlord insurance policy
  • Landlord liability insurance, which can pay out in the event that someone suffers an injury as a result of a fault in your property

You may choose to take out only some of these covers, although you should remember that your mortgage provider will likely require you to have buildings insurance. Think about the specific risks you want to insure against, and build a policy that suits your needs.

Is it compulsory to have landlord insurance?

The short answer is no. In the UK there is no legal responsibility to be covered by landlord insurance. Should you be seeking a buy-to-let mortgage, however, it might not be that simple, as many lenders will require that landlord insurance be in place as part of their mortgage agreement.

However, it’s extremely important to understand that a normal, owner-occupier home insurance policy will not cover you against rental risks. If you’re renting out all or part of a property, you should seriously consider landlord insurance in order to avoid potentially costly problems.

How much does landlord insurance cost?

The price of your landlord insurance policy will depend on a range of different factors, and varies by landlord. Your premium will be affected by things like the types of cover you’re including, the number of properties you’re insuring, their location, and the number of tenants. Ultimately, the premium will be calculated based on the level of risk the insurer considers present for you. The good news is that landlord insurance is not prohibitively expensive, and should run into the hundreds, rather than the thousands.

You should also note that landlord insurance is tax deductible, meaning that you can offset it against your rental income. We’ll be covering landlord tax in more detail on Ideal Flatmate in the coming weeks, so stay tuned for more.

What level of landlord insurance cover do I need?

Being under-insured is just as risky as not being insured at all. It’s really important that you make sure you’re taking out enough cover when you buy your policy.

For buildings insurance, you should calculate your cover level based on the rebuilding cost of the property. Similarly, contents insurance should be based on the total replacement value of the items being insured.

More complicated is landlord liability insurance. Liability claims can be huge, especially in the unlikely but possible event of a death. Most landlord insurers offer liability insurance up to £5 million, but they will also generally offer different levels below this.

Where can I get landlord insurance?

There are many landlord insurance providers in the UK. Some of these are actual insurers, while others are brokers.

However, not all landlord insurers are alike. Some, for example, will not cover unoccupied properties, while others specialise in houses in multiple occupation (HMOs). You should also make sure that you understand the excess. An insurance excess is the requirement for the policyholder to pay the first part of any claim. Excesses can vary significantly, but a lower excess generally means a higher premium. Think carefully about the excess you’d be able to pay in the event of a claim. Remember that many insurers will allow you to spread the cost of your policy across a full year – but also note that some charge interest for this facility.