Buy-to-Let vs. Landlord Insurance: Explained

Nikka Sulton

Buy-to-Let vs. Landlord Insurance: Explained

Understanding buy-to-let insurance can be confusing for tenants and landlords alike. To provide clarity in this matter, we’ve prepared a concise guide outlining the various buy-to-let insurance options available.

Buy-to-let insurance is a distinct realm, offering specialized coverage tailored to the unique needs of property owners who rent out their spaces. Among the primary types of buy-to-let insurance are buildings insurance, which safeguards the property’s structure from unforeseen events, contents insurance, protecting the belongings within the property, and landlord liability insurance, crucial for legal and financial protection in case of tenant or visitor incidents. Rent guarantee insurance is also available to assist landlords in the event of rent arrears. Our guide offers insights into these insurance categories, empowering landlords to make informed decisions about protecting their investments.

Landlord insurance, often referred to as buy-to-let insurance, is tailored for property owners who rent out their properties. It offers specialized protection, covering various risks related to renting. These policies typically address matters concerning the property structure, contents, loss of rent, and liability claims for injuries or damages that occur on the premises. Additionally, landlords with multiple properties can opt for a portfolio policy, providing coverage for multiple sites under a single plan.

What is landlord buy-to-let insurance?

Buy-to-let insurance is a specific type of insurance crafted to mitigate risks associated with renting out your property. It provides specialized coverage beyond standard home insurance, which often doesn’t protect against issues that may arise during a tenancy.

This landlord insurance can encompass a wide range of scenarios, including boiler breakdowns, loss of rental income, and damage from events like flooding or fires. It’s tailored to safeguard landlords from potential financial setbacks in the rental business.

Do I need to have landlord buy-to-let insurance?

The buy-to-let market, which emerged in 1996, has witnessed substantial growth, and current monetary policies continue to favor buy-to-let investors, projecting ongoing expansion. Buy-to-let insurance, a variant of landlord’s insurance, is tailored to shield property owners from the specific risks tied to letting out a property.

So, how does buy-to-let house insurance differ from regular home insurance?

When leasing a property to a third party, distinct coverage is necessary compared to standard home insurance. While both types of policies encompass the building itself, buy-to-let insurance allows for additional features like loss of rent coverage, which offers enhanced financial security in case of unforeseen issues. In essence, this insurance is crafted to safeguard not only your tangible assets but also your investment.

While not mandated by law, numerous mortgage lenders may require specific insurance when applying for a buy-to-let mortgage.

Typical home insurance might not provide adequate coverage for a non-owner-occupied rental property.

Without appropriate insurance, unforeseen events could lead to significant financial losses. Consider the financial strain resulting from a fire or if a tenant suffered a severe injury due to a property fault and initiated legal action against you. Having the right insurance is essential to protect against such scenarios.

Types of tenant

When you’re renting out a property, you naturally hope to find responsible tenants who will take good care of your building. However, tenants come in various forms, and some may appear riskier than others.

We highly recommend a vetting process to ensure that your tenants are suitable for the property. This adds to your peace of mind. Here are some types of tenants you may encounter:

Professional Lets: These are working tenants, whether individuals, couples, young professionals, or families. The key is that they earn a living and cover their rent independently.
Students: While fewer rental properties may accept students, they are attractive because multiple people often share the rent. Students may be seen as higher-risk but offer a potentially higher reward.
DSS: DSS stands for the Department of Social Security, also known as LHA or Local Housing Authority. This term refers to tenants whose rent is paid through housing benefits from the local council. Such tenants may have fewer options when it comes to rental properties.
Sub-Letting: Insurers typically view sub-letting as a significant risk, as proper vetting processes are often not followed. Allowing sub-letting means you have little control over who enters the property, so it’s wise to think carefully before permitting it.
Family Lets: Even when renting to family members, it’s essential to have a tenancy agreement in place, especially if you’re charging rent. Some insurers may offer coverage without a tenancy agreement if you’re renting to families and not charging rent.

What does landlord buy-to-let insurance cover?

Buy-to-let insurance offers coverage for various aspects, including:

Buildings: This insurance safeguards the property’s structure and permanent fixtures like kitchen and bathroom fittings. It should also cover the costs of rebuilding in case of incidents such as fire, flood, vandalism, storms, or subsidence.
Contents: If you rent out a furnished or partly furnished property, this covers belongings, furnishings, carpets, and appliances. You may also consider adding accidental damage cover to protect against tenant-caused damage.
Property Owner’s Liability: Protection in case a tenant sues you for accidents in the property that resulted in injury or death for which you can be held responsible.
Loss of Rent: Allows you to make a claim if the property becomes uninhabitable due to incidents like fires or flooding. Additionally, rent guarantee protection covers loss of rent when a tenant remains in the property but stops paying rent.
Legal Expenses: Covers legal costs for potential disputes with tenants, including defense costs in liability cases or legal action required for tenant eviction.
Home Emergencies: Typically an optional extra, this landlord emergency cover provides 24/7 assistance and helps with costs related to home emergencies, such as burst pipes or a broken boiler.
Multiple Properties: If you own more than one buy-to-let property, you can cover them all under a single policy.

These coverages can vary, with some included as standard and others available as optional extras for an additional premium. It’s wise to compare different quotes to tailor your coverage to your specific needs.

What are the benefits of benefits of buy to let insurance?

When considering buy-to-let insurance, it’s crucial to focus on specific features in the policy:

Rebuild Value: Remember that you’re insuring the property’s rebuild value, not its purchase price. The ABI rebuild calculator can help you determine this cost accurately.
Property Owner’s Liability: This is a vital aspect for buy-to-let landlords. You are responsible for property maintenance, and if a third party or their property is affected by loss, damage, or injury due to an accident on your premises, you might be legally obligated to compensate them. Buy-to-let insurance can cover these expenses.
Buildings Insurance: Calculating the right insurance value for your building can be challenging. Overestimating leads to unnecessary higher premiums, while underestimating may leave you without full repair coverage. Insure for the property’s rebuild value, not its purchase price. Online calculators like the ABI rebuild calculator are helpful tools.
Alternative Accommodation: This coverage comes into play when an insured peril, like a fire, makes the property uninhabitable for your tenant. As a landlord, it’s your responsibility to provide alternative accommodation during repairs. Insurance will cover the cost of such accommodation, usually with an upper limit, like 20% of your total insured sum (varies by insurer).
Loss of Rent: This coverage is activated when an insured peril renders the property unlivable, and your tenant can’t pay rent during this period. It allows reimbursement of up to 20% of your insured sum in rental income you would have received. Most insurers offer similar coverage options.

How to get a great deal on your buy-to-let property insurance

To secure an affordable insurance deal, it’s crucial to conduct thorough research and compare various insurance quotes. Additionally, you can consider potential premium savings by:

Increasing Voluntary Excess: You can choose to pay a higher voluntary excess toward a claim, which may lead to a lower premium. However, it’s important to set this amount at a level that you can comfortably afford.
Enhancing Security: Installing security features such as alarm systems and robust locks on doors and windows can positively influence the insurance quote you receive.
Tenant Selection: Opt for lower-risk tenants to potentially reduce insurance costs. For example, renting to students might result in higher premiums since they are often considered higher-risk tenants by insurance providers.
Property Maintenance: Maintaining your buy-to-let property is a landlord’s responsibility, but it also plays a role in insurance. A well-maintained property is less likely to generate claims. It’s worth noting that insurance typically doesn’t cover damage caused by wear and tear.
Annual Payments: Choosing to pay your insurance premium annually can be more cost-effective than making monthly payments, as the latter may involve interest charges.
Pet Restrictions: Allowing tenants to have pets can potentially increase your insurance premium due to the higher risk of property damage.

By considering these factors and tailoring your insurance choices to your specific situation, you can aim for a more budget-friendly insurance policy.