When you are looking for a landlord’s insurance policy, you need to be proactive. Try to envisage the sort of thing that could happen, and what the consequences could be if you weren’t insured.
You may think that this is being a “gloom and doom” merchant and that it isn’t necessary to look on the black side all the time. However, if you take an ostrich-like attitude and ignore things that could happen, this could result in financial ruin.
So what does your landlord’s insurance need to cover?
• Buildings. Your buildings insurance must cover the cost of demolishing and rebuilding – including fees for architects and other professionals. This is the usual advice but it’s incredible how often it’s ignored. The sum insured will be a lot more than the current market value, but to limit your insurance to the market value will be a serious mistake. The risk is greater because of the possibility of tenants starting fires or doing other damage. Some insurers refuse to cover for accidental damage to a tenanted property, so make sure you look for one that will.
• Loss of rent. A major incident that leads to a claim on your buildings insurance, will also involve loss of rent. So make sure your landlord’s insurance policy covers this. If you have a mortgage on the property, remember that you still have to keep up your mortgage payments even if your rent payments have ceased. So without specific insurance cover you will find yourself in a serious position.
• Property owner’s liability. When you let out property, you have a legal duty of care to your tenants. This includes responsibilities such as fire safety, keeping gas appliances regularly inspected, and maintaining the fabric of the building. Make sure your landlord’s insurance covers you for a tenant suing you for injury incurred while on the property, but remember that if you have failed to comply with your legal requirements the insurance probably won’t pay out.
• Landlord’s contents insurance. This covers furniture and soft furnishings provided for your tenants, plus goods such as refrigerators and washing machines you provide for their use. It does not cover tenants’ personal belongings. You must make this clear to your tenants and advise them that they need to insure their own belongings. However you are responsible for providing adequate security for the building. If a tenant’s personal property was stolen and it could be proved that this was due to inadequate security arrangements, you would be liable under property owner’s liability.
It’s essential to pay attention to these matters when you become a landlord. You are responsible both for taking out landlord’s insurance to cover all these risks, and for ensuring all measures are in place to comply with your legal responsibilities. Of course none of these happenings is very likely. But they are all possible, as any experienced landlord will tell you. And without insurance, any one of them could ruin your business.