One of the most important factors you will have to consider when getting involved in buy to let investing is landlords insurance. The reason that buy to let insurance is so important is because you need to make sure you are covered for risks that would not normally get paid out under the usual home owners insurance policy.
At home, you are unlikely to deliberately set out to smash windows or rip out the bath and toilet. But when you have tenants in your house, these things can happen. The last thing you need is to end up with bad tenants who aren’t paying rent leaving you out of pocket. Then you spend your own cash getting lawyers to evict them, all the while your bills are mounting up and the mortgage isn’t being paid. Finally you get an order to get rid of the deadbeats but on their way out they trash your property just to spite you. And then to make matters worse your insurance company tells you that because the damage wasn’t accidental it won’t pay out.
This may seem a nightmare scenario but it has been known to happen to unwary landlords. Now if you happened to have a buy to let portfolio of 10 or 20 properties you could live with this happening once in a while. Just put it down to the cost of doing business. But if you have just one or two properties, a run of bad luck like that could ruin you financially and completely destroy your dream of making money from buy to let property investing.
What makes landlords property insurance different?
The key difference between normal household or structural insurance and buy to let insurance is that the insurer knows that it is taking on a slightly higher risk profile but it prepared for that. The odds are that you will end up paying at least 25% more for landlord’s insurance than you would for household cover. But that cost ensures that your insurance company won’t turn around and repudiate a claim because the property is being let.
Landlord insurance will also pay out for other sorts of loss compared. Say a pipe busts and damages everything in the house so that it needs months to be repaired. During that time you won’t be getting any income from the property but still have to keep paying the mortgage. A good policy will pay out the rent that you would have received.
Some of the other elements that a comprehensive buy to let insurance policy will include are:
Legal expenses
If you have to evict tenants because they have stopped paying rent then the legal bills can quickly add up. Don’t forget that lawyers charge by the hour. If you have legal cover then all of these costs will also be covered.
Rent guarantee
This is usually an optional add-on or can be bought separately as a stand-alone policy. The basic idea here is that you get a proper credit check and references check of your prospective tenants. If they pass the credit checks you can then buy rent guarantee insurance that covers you against them suddenly stopping paying rent. If, for whatever reason they don’t pay, then the insurance policy will kick in and start paying legal costs to get them out of your property while still covering the rent that they would have been paying. This comes in different levels with some also guaranteeing rent if the property stands empty for a period of time while you find a new tenant.
Landlords liability insurance
This is perhaps one of the most important bits of cover. Say through no fault of your own a wall falls down and badly injures a tenant. This was an accident that you couldn’t have foreseen but you may still end up facing long and expensive lawsuits with the possibility of having to pay millions in damages. Proper liability cover should be included in your landlords building insurance to protect you.
Landlord contents insurance
If you provide a furnished property, or even just provide a minimum level of furnishing such as a fridge, dishwasher, washing machine and the like then you may want to also consider contents insurance to cover theft or damage to these items
Boiler insurance
Depending on how hands on you are prepared to be as a landlord will determine whether you also want to take out additional cover such as boiler insurance cover and central heating insurance. These are often quite pricy but can provide peace of mind in the even that a boiler suddenly stops working in the middle of winter or that the central heating springs a leak. If you are happy to take calls in the middle of the night and run around arranging plumbers and gas engineers then you may decide it is not worth it. But if you are out of the country or not especially technically minded then boiler insurance and central heating insurance will mean that the tenants get a dedicated number to call and you don’t have to worry about fixing the problem yourself.
It may be tempting to go for the first cheap landlord insurance policy you get, but finding good buy to let insurance cover means shopping around a bit. Try to get landlord insurance quotes from a few different providers as the premiums they charge can vary considerably. When I last bought buy to let home insurance cover some landlord insurance quotes were easily double the one that I eventually accepted for more or less the same level of cover. So be sure to shop around and get all your options explained to you. Also be sure that you discuss all the issues with your insurer. Failure to disclose problems such as a history of subsidence or previous flooding could result in an insurance claim being rejected.