Like most people, I get annoyed by insurance. It's boring and complicated to buy, but my ultimate hope is that I don't need to use it. Then if I do need to use it, there's always the worry that the company will try to wriggle out of actually upholding their side of the bargain.
Unfortunately, we all have little choice but to buy at least some level of insurance cover. And if you're in the position of needing to buy, you're probably wondering things like:
- What type of landlord insurance do I need?
- How do I know how much landlord insurance costs?
- Will the insurer actually pay out if I need to claim anyway?
- Who should I use as a landlord insurance insurance provider?
In this article, I'm going to give you the answers – as quickly, simply and non-boringly as I can.
There are three main types of insurance that you, as a property investor, might want to consider taking out:
- Landlord Insurance (including Buildings Insurance, Contents Insurance and Public Liability Insurance)
- Landlord Emergency Cover
- Rent Guarantee Insurance
The first of these is by far the most common and also the most complex, so I spend the majority of this article looking at it in detail before moving on to the others.
So: deep breath, and off we go!
What does landlord insurance involve?
A Landlord Insurance policy typically (but not always) includes Buildings Insurance, and will optionally include Contents Insurance and Public Liability Insurance as well. While the names are roughly self-explanatory, we'll start by digging a bit deeper into what each of these components can cover you for.
The central component of Landlord Insurance is Buildings Insurance – meaning that you're covered if some catastrophe befalls the fabric of the building, including permanent fixtures and fittings.
As a rule, if you can't easily pick it up and take it away, it's covered – so that's yes to fitted kitchen cabinets and bathroom fixtures, and no to carpets and curtains.
(Anything that can be picked up and taken away is covered by Contents Insurance, which we'll cover in the next section.)
It serves the same purpose as the Buildings Insurance policy you'd have on your own home – but for rental properties you must use a policy that's aimed at landlords rather than owner-occupiers, or your insurance will be invalid.
Unless you're happy to cover the cost of rebuilding the property from scratch if it burns down, this is a component of Landlord Insurance that you'll definitely want. And even if you're hungry for risk and have more money than sense, if you have a mortgage against the property it will be a condition of the loan that you have adequate Buildings Insurance in place.
(If the property is a flat within a block, it's likely that your Buildings Insurance is on a block policy which you pay for as part of your service charge. Check this to make sure you're not buying extra insurance unnecessarily.)
Buildings Insurance will only cover the structure of the building, and therefore not anything that could be dismantled or ripped out and taken away – which includes carpets, curtains, any furniture you provide, and so on. To cover these items, you'll need to add a Contents Insurance component to your policy.
Even if you're letting the property unfurnished, there are still likely to be carpets and kitchen appliances – so you might decide that taking out Contents Insurance is appropriate. Or then again, given that there's a limit to how much it would cost to replace items like carpets and fridges, you might decide that it's a risk you can afford to take and you'll just pay out of pocket if anything happens.
It's worth making clear that a landlord's Contents Insurance policy doesn't cover tenants' possessions. You should make your tenants aware of this, and tell them that they might want to consider taking out their own policy to cover their possessions.
Public Liability Insurance
A Landlord Insurance policy will usually include an element of Public Liability Insurance – which covers legal costs and damages payable resulting from any accident that happens to someone on the premises.
The limit on the Public Liability component of policies often looks huge – it can be as much as £5 million – but it's necessary. For example, if a tenant trips on a loose bit of carpet at the top of the stairs and ends up paralysed, they could sue you damages and a lifetime of medical bills – which could easily amount to millions.
Landlord Insurance: What you need to know
If the property you're letting is a house, you'll definitely need to take out a Landlord Insurance policy to cover the building itself. Even if it's a flat and the Buildings Insurance is arranged by the freeholder, you might still decide to take out a policy to cover your contents and public liability.
So what types of Landlord Insurance are out there, how do you buy it, and what do you need to know in the event of a claim?
Standard, off-the-shelf Landlord Insurance generally covers the building and its fixtures against a broad range of “perils” (as they're rather dramatically called). They will usually include damage from fire, lightning, storm, theft, explosion, escape of water, impact by vehicles or aircraft, theft, and a grab-bag of other bad stuff.
(If you choose a Landlord Insurance policy that includes the Contents Insurance component, these too will be insured against a specific list of “perils”.)
It's worth checking what's included, and adding on any “extras” that you think are necessary. For example, malicious and accidental damage by tenants is sometimes included and sometimes needs to be added on – so if that's something you want to be covered against, you need to check and add it to your policy if needs be. Another extra is “track and trace”, which covers the cost of any damage caused by searching for the source of a leak – a process which often does more damage than the leak itself.
It's also possible to build your own bespoke policy, made up of whichever perils you want to be covered against – so if you only want to be protected against specific eventualities, you can get cheaper cover by excluding some risks. This is a somewhat dangerous game of course, because it's not much use being covered against being hit by an aircraft if the wall is rammed into by a car. (Also, mortgage lenders will generally specify a minimum acceptable level of cover in their terms and conditions.)
The “sum insured”
As we've just seen, one component that determines the cost of a Landlord Insurance policy is the extent of the list of “perils” that are insured against.
A second component is the level of the “sum insured”: the maximum amount that the insurer will pay out for any one claim. If you own a £1 million mansion and it burns to the ground, you're going to want a bigger payout for it than your £50k terrace which also goes up in smoke. (It was clearly a bad month for you. And blimey is that a diversified portfolio!)
But really, talking about a “£1m mansion” is a bit misleading – because the “sum insured” should always be equal to the rebuild value of the property you're insuring, not its market value.
Why? Because if the property burns down, you want to be covered for the full cost of rebuilding it. There's no point being insured for any more than that, because the insurer will never have to pay it out – they'll just give you whatever you need to rebuild the property.
Often, the rebuild value will be lower than the market value: the property is worth more to whoever buys it than the pure cost of the labour and materials it would take to build it from scratch. In this situation, if you insured the property for its market value, you'd be over-insured – and you would therefore be paying more for your policy than you needed to.
Sometimes though, in cheaper areas of the country, the rebuild cost is actually higher than the market value: the price you pay for the property is less than the sum of its parts! In this situation you'd be under-insured if you errantly insured the property for its market value rather than its rebuild value.
So how do you calculate your rebuild cost? There are actually three ways:
- If you've recently bought or remortgaged the property, the survey that was conducted (either a valuation report commissioned by the lender, or your own HomeBuyer Report) will state the rebuild value.
- You can pay a surveyor to come and calculate it for you, which you can expect to set you back around £200.
- You can use an online calculator, which involves knowing the dimensions of the property and some details about its construction. This is the least precise method, of course, because it involves an element of estimation and best guesses. The Association of British Insurers commissioned a calculator which can be found here.
Another factor that influences the cost of an insurance policy is the “excess”: the amount that you, the customer, will need to pay towards the cost of a claim.
For example, if the excess on your policy is £200 and the cost of repairing some water damage to a ceiling is £1,000, the insurer will require you to cover the first £200 and will pay out for the remaining £800.
You can choose the level of your excess depending on how much you're willing and able to pay out if you need to make a claim. A higher excess will reduce the overall cost of the policy as it transfers more risk to you. Alternatively, you can reduce the excess all the way down to £0 in exchange for paying more for the policy in the first place.
Sometimes, specific items will come with different excesses. For example, if your policy covers the property against subsidence, the excess for this particular “peril” is often set separately from the excess for everything else.
Conditions of Landlord Insurance
All policies are sold subject to a set of conditions: things that you, as a customer, must comply with. Many of these relate to the (perfectly reasonable) principle of “acting as though uninsured”: in other words, you can't take crazy risks and fail to maintain the building properly because you know the insurer will pick up the bill if something goes wrong.
The “key facts” illustration that comes with your policy will list these conditions, and they're normally easy to understand. Expect to see things like:
- Regularly inspecting and maintaining the property
- Providing documents to support any claims
- Keeping your information accurate and up-to-date
- Informing the insurer of any loss or damage as soon as possible
- Informing the police of any crimes (like vandalism or theft)
There will often be a condition that requires you to let the insurer know about any building work at the property. Building work exposes the property to additional risks such as accidental damage (like a nail through a pipe or a foot through a ceiling), theft of materials and theft by tradespeople – all of which may not be covered if the insurer is unaware that the work is taking place.
There will also be conditions around empty properties. The exact conditions will vary between policies, but often involve the scope of the insurance being reduced as soon as the property becomes empty or after a particular length of time. There may also be the requirement to inspect the property at certain intervals and to drain down the water system.
It's important to be aware of the conditions that are part of your policy, because failing to adhere to them may invalidate any claims – and ignorance is no excuse. It's not that insurers will necessarily be looking for excuses to wriggle out of paying out, but it's reasonable that they should expect you to stick to your side of the bargain if they're going to stick to theirs.
Exclusions are types of loss, damage or situations that the insurance policy will not cover.
One exclusion that you'll find on every policy is wear and tear. Wear and tear isn't covered because it's inevitable: everything suffers gradual damage from being used for its intended purpose, and when it comes to the end of its natural life it needs to be replaced.
Although wear and tear isn't covered, damage resulting from wear and tear might be. For example, an old roof may leak during a normal rain shower, causing water damage to items inside. Replacement or repair to the roof wouldn't be covered, but resulting water damage to the walls inside might be covered if accidental damage cover is in place.
Reading through your policy's list of exclusions can be equal parts terrifying and hilarious. Chances are you've never thought about damage from “pressure waves caused by aircraft travelling at supersonic speeds”, but if you're worried now I've mentioned it, tough luck: it's often excluded from policies.
Of course, you can insure against anything for a price – so if you find that your off-the-shelf policy excludes something your crystal ball tells you may be an issue, you can always get a quote for having it added to the policy.
How to buy Landlord Insurance
Now you know what a Landlord Insurance policy covers, and you're clued up on what determines its price and what conditions and exclusions you need to be aware of, you're able to make an informed decision about which cover to buy.
In this section we'll look at what to buy, how to buy, and how to make a claim.
Preparing to buy
The key word when it comes to buying insurance is disclosure – that is, telling the insurer everything they might reasonably want to know to help them decide whether to insure you and how much to charge.
In 2014 the Consumer Insurance Act was introduced, which shifted a lot of the burden to the insurer to specifically request the information it needs in order to offer a contract to customers. However, it's still important to proactively tell them anything you think might be relevant – and to answer their questions accurately and honestly.
Each answer you give will serve to either increase or decrease the cost of cover, because it tells the insurer something about the level of risk. You might be tempted to bend the truth about certain aspects of the cover to bring the price down – which is, of course, a Really Bad Idea. After all, there's no point paying any amount of money for an insurance policy which will never pay out a claim because the information you gave was inaccurate.
So before you're ready to buy, arm yourself with the following:
- The rebuild value of your property
- Thoughts about the level of excess you're comfortable with
- A decision about whether you want to include Contents Insurance
- Information about any specific perils that you want to check on the inclusion of, and get a quote for adding if necessary
One you've bought a policy, you might think your work is done – and it largely is, but there's another action you should take to protect you against any confusion or misunderstandings.
That is to actually read the policy documents that are sent to you by email (and by hard copy in the post if you request it).
It won't be the most fascinating thing you read all year, but nor is it as bad as you might think: policies come with a “key facts” document that's only a couple of pages long, and a full set of terms that can comfortably be scanned in 10-15 minutes.
It's well worth it, because it will allow you to clear up any misunderstandings or inaccuracies right away: if any details are incorrect, you can just report them to the insurer who will re-issue the documents. The last thing you want is to have a policy that's invalid because of some detail that you accidentally gave incorrectly, and only find out when it's time to make a claim.
The other reason it's worthwhile is because you can familiarise yourself with exactly what you are and aren't covered for – and again, if you realise at this point that you'd like something changed, you can contact the insurer to do so.
There's a perception that insurers will try to wriggle out of paying claims any way they can. But while they're not going to pay out for anything if they can help it, they're bound by their agreement with you – meaning that if you keep your side of the bargain, they will pay out for anything that they've said they will. Most disputes and dissatisfaction arise from misunderstandings and inaccuracies, so when hundreds of thousands of pounds are potentially at stake it's well worth spending 15 minutes making sure everything's in order.
During the policy
Now you've read the policy documents, your work really is done…unless something changes in relation to the property.
As we saw in the section about conditions, there will be the requirement for you to keep the insurer informed about certain things. Commonly if the property becomes empty (or is empty for more than a certain number of days) you'll be required to tell the insurer, and also if significant building work is planned to take place.
If in doubt, it's always worth a quick call to make sure you're still covered. The worst case is that the insurer will believe that your property is now a higher risk, and slightly adjust the cost of your policy upwards – which is still better than having your policy invalidated because you didn't inform them about something you should have done.
How to claim
Insurance is probably the only product you'll ever buy in the hope that you won't need to use it. But every so often, you'll suffer some damage or loss which you'll want to claim against – and when that happens, there are certain actions you can take to maximise the chances of getting paid out promptly without any drama.
The first thing to do is to report any potential claim as soon as possible. An insurer will want to know about any issues early, so they can take an action necessary to prevent them becoming more serious – and therefore more costly. Consequently, they may decline claims that have taken an unreasonably long time to report.
After alerting the insurer to a potential claim, you'll then need to follow up with relevant documentation to support your claim – and the more comprehensive your documentary evidence, the greater your chances of a satisfactory resolution.
Essentially, you'll need to provide information about what happened, when it happened, how it happened, and how much it will cost to put it right. Examples of helpful documentation include:
- Police reference numbers
Once the claim has been made, the insurer will have a set timescale in which they must reply to you, and they may request further information if they feel that they need it. The claims process will be outlined in the terms and conditions you receive when you take out the policy, and more information about what to expect will be issued to you at the point of making a claim.
Do you need Landlord Emergency Cover?
Landlord Insurance is the “must have”, but there's another type of insurance that's becoming increasingly popular with investors: Landlord Emergency Cover.
Landlord Emergency Cover covers emergency repairs to aspects of the property that can have major health or safety implications to tenants if they're not resolved quickly. The exact list depends on the policy, but will often include boilers, plumbing issues, electrics and pests.
If you take out a Landlord Emergency Cover policy, the insurer will provide you with the number of a 24-hour hotline which you can pass on to your tenants. Then, in the event of an emergency, they just call the number and someone comes out to fix the problem.
I've only become aware of this type of insurance within the last year, and since doing so I've been gradually taking it out across all my properties. I actually held off for a long time because I was convinced there must be a catch – but there really isn't.
There are two reasons why I like it. Firstly, it clearly means less work (especially if you're a self-managing landlord): the tenant can call the insurance company instead of you. That means if there's a burst pipe, a lack of hot water or the electricity goes out late at night, you don't get a call – and probably won't even find out about the incident until it's already resolved.
If you use a managing agent then this isn't quite such a time-saver (the tenant would have called the managing agent instead of you anyway), but you'll still benefit from the second advantage: being protected from potentially pricey repair costs.
The policy will cover the cost (up to a maximum of £750) of making an emergency repair – which often has the effect of resolving the issue for good. So if the boiler is completely broken beyond repair you'll still have to foot the bill, but on many occasions they'll come out and fit a replacement part which prevents the issue from reoccurring.
If you didn't have cover in place, you'd have to pay for the repair yourself – which could also involve paying an expensive callout charge to avoid leaving the tenant shivering/drowning/in the dark for an extended period of time.
One thing to note: a condition of cover is that your boiler is serviced annually, but this should be done as part of your annual Gas Safety Certificate anyway.
Congratulations – you now know more about insurance than 95% of other landlords. Hopefully using that knowledge you can now buy appropriate peace-of-mind at as cheap a price as possible…and hopefully also, you won't have to use it.