Landlord insurance: do you need it?
Landlord insurance can provide protection in a changing property market. Here are some points to consider when you’re shopping around.
It’s a turbulent time for the UK’s landlords. They are faced with a changing rental market where good news and bad jostle for their attention – tenant demand is high but the government has increased stamp duty for investment properties.
Buy-to-let mortgage tax relief is on its way out but rental incomes remain strong. Changes to rules on tenant fees could see letting agent fees rise for landlords later this year but proptech (property technology) ventures have created more choice and competition than ever.
With potentially higher costs, some landlords and would-be property investors may be looking to save money by scrapping extra costs. So how necessary is a good landlord insurance policy? We’ve asked the experts.
What does landlord insurance include?
All insurance policies can vary and so it’s essential to read exactly what is included before signing up to it. Standard landlord insurance, however, covers a few key areas.
Daniel Thomas, partner at Primas Law, explains: “Your standard landlord insurance policies usually start with building insurance and property owners’ liability insurance. These cover the cost of repairing or rebuilding your property and cover any personal injury to a tenant or visitor.
“One of the biggest risks in renting out properties is: ‘What if the tenant doesn’t pay the rent?’ People may not be aware that your average landlord insurance does not cover a default by the tenant.”
This can be problematic for landlords as eviction can take time, leaving them paying for a property that is not bringing in any income.
You can often add on extras to policies or shop around to find the cover that best suits your needs. For example, you may also want accidental damage cover or legal expenses insurance. Some policies may include tenant default insurance, covering lost rental income for a period so that the landlord doesn’t have to take the hit.
As with any insurance, the more it covers the more you will usually pay. Comprehensive landlord insurance protects property investors from a variety of risks.
So do I need it?
While most landlords may want an insurance policy, some may be obliged to have one as part of the conditions of their buy-to-let mortgage.
Adam Cheal, managing director of conveyancing law firm Fletcher Longstaff, says: “If you have a mortgage on your property it’s very likely that your lender will require you to take out insurance before you take on tenants.
“It’s important to note that you’ll usually need written permission from your mortgage lender before you let your property, and that failure to get this may mean that you’re breaking the terms of your mortgage.”
Landlords who own their property outright may not need a mortgage and so may wonder if it is worth saving the money. But Thomas says that’s a saving that could backfire. “Why take the risk?” he asks.
“It’s not mandatory, but taking out landlord insurance is often advisable. You may already have a home insurance policy in place, but this won’t keep your property fully protected”
Alexandra Morris, managing director, MakeUrMove
“Purchasing landlord insurance, which covers as many elements of risk as possible, including a default by the tenant, could save you thousands of pounds in the long run.”
What if I’m just letting out a room?
Not every landlord is managing a buy-to-let property – some are renting to family or simply letting out a room in their own home. Under the UK’s rent-a-room scheme, householders are allowed to earn up to £7,500 a year tax-free by letting out a furnished room in their own home (that’s halved if you’re a couple).
Alexandra Morris, the managing director of online lettings agent MakeUrMove, says insurance is important even for letting out a furnished room.
She explains: “It’s not mandatory, but taking out landlord insurance is often advisable. You may already have a home insurance policy in place, but this won’t keep your property fully protected.
“For example, although you get some public liability protection in your home insurance package, this won’t cover any accidents involving your tenants.
“Similarly, while home insurance would provide you and your family with alternative accommodation if your house was to become uninhabitable, you wouldn’t be covered for any costs if you had to rehome your tenants.
“Likewise, should you need to take any legal action with a tenant, for example, for unpaid rent, your existing home insurance wouldn’t cover you.”
What if I’m letting to family?
Plenty of people are landlords to family members, perhaps because they have agreed to rent them a room in their home or because a parent has invested in a flat or house to rent to their adult son or daughter.
For informal agreements, there may not be a need for insurance. However, if a family member is paying rent then the property owner is officially their landlord – and so it makes sense to have some extra protection.
After all, if it’s a room in the family home then a standard home insurance policy may well not extend to an official tenant, even if they are related.
How much will I pay for landlord insurance?
There are so many variables – location, the property value, the level of cover required. The quickest way to find out what a policy will cost is to run a quote on your specific property.
As with any insurance policy, it shouldn’t be about finding the cheapest landlord insurance but rather finding the right cover for your needs. That way you aren’t left out of pocket if things go wrong.
There’s a lot to consider when becoming a landlord, whether it’s to a family member or stranger, whether it’s a room in your home or a separate investment property. But understanding the risks and how to mitigate them with insurance should be a key goal for every would-be investor.