Brignall Archer

If you are a landlord or are thinking of becoming one, it is crucial to know all the facts about landlord insurance before renting a property out to tenants.  Different types of landlord insurance are available, but generally a policy should cover buildings and contents insurance, which includes damage from storms, fire, burst pipes, fuel oil leaks, theft, smoke and lightning.  It may also include cover for events such as the property being damaged by falling trees or vehicles involved in a road accident. Always thoroughly check your individual policy to see what is and is not covered.  Fitted furniture such as kitchen units or built in wardrobes will also fall under buildings and contents insurance, but it is important to note that all possessions belonging to tenants should be covered in their own contents policy.

Depending on the nature of your landlord insurance policy, you may find yourself not covered in certain situations.  It may be worth upping the premiums so that your property is covered for periods of vacancy between tenants; although it is worth noting that this would not extend to long unoccupied periods or holiday lets, for example.  Similarly, it might be worth checking your policy to see that the cost of re-housing tenants is covered, in the event of serous damage or major repairs.

Listed as follows are a few legalities that you should be aware of when obtaining and holding landlord insurance:

When you are initially seeking insurance and filling in the proposal, or when you renew your policy, you have a ‘duty of disclosure’ to honestly answer any question your insurers may ask.  It is essential that you complete this section of the proposal accurately because the insurer can refuse a claim if you do not disclose information that is relevant to the case.  If you are unsure whether information is relevant, consider whether or not it would affect the risk element involved in covering you or the property.  If the answer is yes, then the information needs to be disclosed.  In the event circumstances change whilst the policy is in force, it is a good idea to let the insurance company know of these changes.

‘Utmost good faith’ is the foundation on which every insurance contract is formed.  This means that both you and the insurer have an obligation to be fair and honest with each other, and the duty over-rides any other clause in the insurance policy.

Insurance companies will have the right to refuse to provide you with landlord insurance cover.  If this happens, it is useful to know the reasons why, and you have the right to ask why they have refused to insure you.

If you bear these legalities in mind when taking out a policy for your property, you will be in good stead for the future.

Rent Guarantee Insurance is an optional part of Landlord Insurance that property owners can take out to protect themselves against loss of rent.  It also covers any costs involved in instigating legal action or obtaining financial damages against tenants who have broken the terms and conditions of their rental agreement.  Rent Guarantee insurance is usually combined with Legal Assistance insurance, which covers the costs associated with recovering unpaid rents and evicting bad tenants.

Property owners that purchase landlord insurance with a Rent Guarantee option are required to provide detailed information to the insurer in order to make a claim. A signed tenancy agreement, two forms of identification and a photo of the tenant, proof of the tenant’s employment, a month’s rent in advance plus a dilapidation deposit fee must have been paid, the record of rents paid and rents due, and tenant references, verified by a professional referencing company, are all necessary for any claim to proceed.

Loss settlements are paid via one of two methods: actual cash value or replacement cost.  Only the current worth of the property is paid out by an Actual Cash Value settlement, which breaks down to the cost of replacement of the property, minus the depreciation in value due to age and wear. The value of the settlement will be limited by the policy to a specific monetary amount.  A Replacement Cost settlement pays the cost of replacement without any deduction for depreciation. The insured party receives a new property of an equal type and quality, within the limits of the cover, subject to review of any applicable deductibles.

Suing and compensation seem to have become synonymous with the way of life in our current society. Claims for negligence against property owners by tenants have caused many landlords to review and adjust their thoughts on landlord insurance. With liability becoming an increasing cause for concern, it seems that this is wise action to take.

In an ideal world we would not have to worry about whether or not a person is taking the necessary precautions to prevent any harm coming their way while occupying rented property. Another problem that arises from rentals is that unforeseen structural degradation can cause tenants or others to suffer serious accidents. It is these freak accidents that can cause more damage to your pocket than anything else that your tenants might do to your property.

While you might not always be able to prevent accidents happening at your property, it is important that you are covered for this possibility so that you are not left in financial ruin if you are unable to prove negligence on your tenant’s part. Preventing your investment from becoming a heavy financial loss should always be one of your aims when thinking about acquiring landlord insurance.

Finding the right type of landlord insurance policy that covers you from the possible ruin of a liability claim is a very good idea. As you will not be residing in the property yourself and do not know all that could befall those who are, then prevention of financial loss through responsible action makes more sense.

Acquiring the right landlord insurance policy is about insuring yourself against events that are often out of your control. When your livelihood is reliant on your property’s ability to provide you with an annual income, it becomes more apparent how dire a situation can become should you lose this financial security.

The catalysts that can drive your rental income to an all-time low vary, but the most common causes are property damage and long periods of property vacancy. These two things don’t always seem like a probability if you have found that your rental property has provided you with a steady stream of income. However, disaster often strikes when you least expect it to.

Trust leads many people to choose the type of tenants that they do. This idealism can be shattered when you have to come to terms with the fact that you truly don’t know people at all. Damages caused by tenants quickly remedy any delusions about the good in people. The sting is further aggravated when you find it is your own money that has to be spent to fix the problems.  Deposits often do not cover repair costs.

The ideal situation for any landlord is that they have full annual occupation of their property. However, there are instances where this might not be the case, perhaps due to a fire or major damage. The effect of this is that you will not have any money coming in through rent. This need not be the case when you have the backing of the correct landlord insurance policy if for some reason the property cannot be let.

There are a number of specially designed insurance products for property owners who are landlords.  Below are listed the three main landlord insurance products.

Buildings Insurance

When buying buildings insurance, ensure that the policy covers the re-building cost and not the market value of the property.  This is because sometimes the re-building value will be much higher than the building’s market value, particularly in the currently depressed economy.  The main dangers which your buildings insurance must cover are fire, explosion, lightening, storms or floods, malicious damage, oil or gas leaks and theft.

Contents Insurance

In the UK most rented properties are either partially or fully furnished.  Therefore a contents insurance policy which includes landlord’s liability cover is useful.  A contents policy typically includes carpets, curtains, light fittings and any appliances.  The landlord’s liability element provides protection for the landlord in case a tenant files a claim for an injury caused by the contents of the house, such as faulty light fittings or a loose carpet. 

Emergency Cover

This is very useful if you are living away from your rented property.  Either the landlord or the tenant can call a 24-hour helpline and get emergency assistance for electricity failure, loss of house keys, plumbing, leaking from the roof or gutters and broken doors or windows.  The policy will provide replacement parts and labour up to the prearranged amount.

It should be noted that some insurance companies will not provide one or all of these types of coverage if you have tenants who are students, multiple individuals sharing the rent or those who get state benefits, as all of them fall into the High Risk Tenant category. 

Landlord insurance will provide you with everything you need to avoid any complications when renting out your property.  With landlord insurance, you can ensure that your personal items will remain covered whilst your property is being rented.  If you are planning to rent out your property fully furnished, then it is vital that you have landlord insurance should any theft or damage occur.

When renting out your property, there is an increased risk of problems with tenants occurring, especially if you have not carried out regular checks to ensure that your property is safe.  Personal injuries sustained by tenants renting out your property may result in legal action being taken.  Therefore, it is vital that you have a landlord insurance policy that provides public liability cover.

Landlord insurance will also help you with any loss of rent that may occur as a result of your property being repaired or loss of income due to legal action being taken by a tenant.  Coverage is also provided for damage to items caused by floods or fire, though this may depend on what landlord insurance policy you choose.

Finding a policy that suits your requirements will enable you to obtain the most out of landlord insurance.  Ensuring that you are fully covered will reduce the risk of problems when it comes to renting out your property.  It is vital that you seek a policy that meets your requirements.  For example, if you live an area that is susceptible to floods, then you will need to make sure that you choose a policy that will provide the coverage you need to keep your home protected whilst renting it out.

When opting for landlord insurance it may be wise to avail other services in order to protect your interests.  Tenant referencing is a service that can negate some of the risk when accepting tenants.  Whilst landlord insurance can help shield a landlord from the financial problems associated with accidental damage or unreliable tenants, it is often preferable to use a tenant referencing service to avoid the hassle that may arise through getting bad tenants.  Tenant referencing can help to identify undesirable tenants who have a history of fraudulent behaviour.  Such services should be a vital tool to you when deciding between new tenants.  There are often three different types of reference service:

•    Standard referencing – This may involve a credit history search, linked address search, validation of references, solicitor references check, ID check, and validation of supporting documents that a potential tenant may have provided.

•    International referencing – These checks will all be performed on an international basis and this type of tenant referencing will likely cost more.  This will usually involve a credit history and ID search which will identify bankruptcies, CCJs, and poor payment records.  It can also involve linked address searching, validation of three references, and rent affordability analysis.

•    Guarantor report – This type of report will be aimed at a tenant’s guarantor.  It would likely cover a six year credit history search that identifies defaults, CCJs, and poor payment records.  It may involve a linked address search which can help to locate undisclosed addresses, income validation, and guarantor suitability checks to asses their ability to meet payments proposed in the rental agreement.

A landlord who is looking to buy an insurance policy for a property that is being rented out to tenants will require a special set of inclusions that take account of his or her individual requirements.  However, the terms of the policy will be broadly in line with the general house insurance requirements for that particular type of property and will cover issues such as damage or destruction by fire or flooding.  These are an important part of any property insurance and should not be overlooked, even if the prime motivation for landlord insurance is to deal with potential issues relating specifically to tenants.

First and foremost in many landlords’ minds, possibly due to the number of both factual and urban legend horror stories on the topic, may be insuring against the eventuality of deliberate or malicious damage caused by tenants.  While landlord insurance should certainly take account of this, it should also cover the possibility that the tenants may not be aware of the law relating to their actions and might undertake unauthorised alterations on the property, such as knocking down part of a wall or otherwise modifying the structure.  This sort of action could prove to be extremely expensive to correct when the tenants finally move out and so it is important for you, as a landlord, to secure your rights as the owner, by taking out a suitable insurance policy, before letting your property. 

In addition to these potentially high cost issues, more general insurance protection, covering accidental damage, attempted or actual theft and loss of rental earnings, should also be considered within the framework of a landlord insurance policy.

To keep the roof over your head, even after sustaining a disaster, buildings insurance is a necessity.  When you own a home, as a landlord or as a resident, it is mandatory that you purchase at least a basic building insurance package.  This type of coverage protects the structure, permanent fixtures and fittings within your home, ceilings and floors, walls, doors and windows, bathroom fixtures, and sometimes surrounding sheds, garages, swimming pools, and fences.

Under building insurance, you will be protected against disasters such as fire, lightning, storm damage, falling trees, explosions, plumbing damage, earthquakes, subsidence, vehicular accidents, or vandalism and burglary.  When such disasters occur, the household insurance provider will pay for your home to be repaired, rebuilt, or replaced, depending on the level of damage suffered.

To get the most accurate amount of coverage, you should consult an agency such as the Royal Institution of Chartered Surveyors for a professional estimate of the sum insured.  Chartered surveyors can more easily perform these calculations after surveying your home and property.  The sum insured is based not on the market value of your home, but on the actual cost of rebuilding your home from the ground up.

For unique or historic homes, extra coverage might be needed to rebuild that style of home, so purchase a home insurance policy that matches your needs.  To obtain a better estimate of your home’s rebuild cost, visit the Association of British Insurers’ website for more information.