What is Buy to Let Insurance?
Buy to let insurance is a bespoke policy for landlords renting a property to tenants. Basic packages cover the building structure itself and liability claims if a tenant is injured or has property damaged and blames the landlord.
There is a range of additional coverages that can be added to a buy to let insurance policy, including contents insurance, accidental damage, rent guarantee, loss of rental income insurance and legal expenses.
Buy to let landlord insurance
Buy to let landlord insurance comes with many elements and can be as basic as simple building and liability insurance, or comprehensive as covering defaults in rent payment.
A brief rundown of each buy to let landlord insurance aspect is explained below.
Building insurance: If the structure of a building is damaged due to qualifying incidents, which usually include fire, flood, explosion, theft, vandalism, or other criminal damage. It also covers smaller issues such as burst pipes or a falling tree damaging the building. If renting out a leasehold property, the leaseholder should hold building insurance for the outside structure of the building. In this case, building insurance would just cover the permanent fixtures attached to the building, such as fitted kitchens, bathrooms and wooden flooring, or guttering, external walls and heating systems (the Financial Ombudsman has defined what is covered under building insurance). This is a basic part of any landlord insurance policy.
Property owners’ liability insurance: This protects a landlord from compensation claims if a tenant or other third party at the property alleges a fault at the property caused them to become injured or have belongings damaged. Insurers cover legal costs and damages, and this is a basic part of any landlord insurance policy.
Contents insurance: This is good for landlords letting furnished properties as it covers the cost to replace or repair goods inside. Even those who are letting unfurnished homes can take out contents insurance as the property will usually have white goods, which can be expensive to replace. Contents insurance on a buy to let policy only covers the landlord’s items and not the tenants. Tenants need to take out their own contents insurance. However, they can claim against the landlord’s liability insurance if belongings were damaged due to a problem with the building.
Accidental damage: This covers contents and the building itself if either were to become damaged by accident, such as a football being kicked through a window. Insurers will only honour a claim if it was an accident. Malicious damage would not be covered.
Rent guarantee: This is useful for landlords dependant on rental income for their own bills. It covers the chargeable rent if a tenant defaults on a payment, and a landlord is usually able to claim for defaults for between six and 12 months. Rent guarantee coverage can also cover the cost of eviction and associated legal costs.
Loss of rental income: This is different from a rent guarantee as it safeguards against the money lost if a house is inhabitable. For example, if a home is flooded, and the tenant must move out, this insurance will cover the money a landlord would have made if tenants were still living there.
Legal expenses cover: For unexpected legal costs if, for example, there was a contract dispute, a tenant took legal action against the policyholder, the action was needed to chase unpaid rent and other issues.
How much does buy to let insurance cost?
The cost of buy to let insurance can be as little as £150 for a basic package, but the price rises depending on the type of property, the size, age and location, as well as add-ons such as contents insurance and rent guarantee.
Research by insurance experts Nimblefins found the average price of landlord insurance for a basic building and liability cover was about £170. While a semi-detached home cost about £150, a flat in a converted building cost £200. A terrace was £156, a flat in a purpose-built block was £164, and a detached house was £179. But costs vary from one individual property to another depending on the characteristics of the building and area.
Landlord insurance is usually more expensive than normal home insurance as tenants are more likely to cause damage to a property and be more disruptive than a careful owner.
Landlords can keep premiums low by maintaining their properties to a high standard, keeping the home secure, and paying annually rather than monthly.
Do I need to buy to let building insurance?
Landlord insurance isn’t a legal requirement for those renting out a home, but many management companies and estate agents request it as part of the terms of dealing with a property.
It is also a wise safeguard if a disaster such as a fire or a flood damages the property. This is especially important for landlords with mortgages on their properties.
Do banks give buy-to-let mortgages without insurance?
Banks usually do not give buy-to-let mortgages without building insurance, which is the standard part of buy-to-let insurance. Building insurance covers the estimated cost to rebuild a home damaged by fire or another disaster, which is why it is usually a pre-requisite to a mortgage agreement.
However, landlord insurance elements are not usually stipulated, and those options are down to the property owner’s decision.