Should you insure your buy-to-lets?

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Buildings insurance: it’s not mandatory, but it makes sense

You may already feel that you are insured to the hilt, but landlords’ insurance is one that you really can’t do without. As with most financial products, it’s not always immediately obvious what is appropriate to your situation, so it’s worth doing some research before handing over any money.

Unfortunately, there’s not just one flat type of insurance that covers you for most risks associated with renting out a property. The level of cover you want will depend on your buy-to-let set-up and your priorities. Note that you will need to buy specialist landlord insurance, not just standard home buildings and contents insurance, as insurers will treat the two situations very differently. 

The most important form of landlords’ insurance you can get is building insurance. It’s not mandatory for landlords to hold this, though many lenders require it before they will grant you a mortgage. Building insurance will cover damage to the structure of your property, in the event of a fire or flood, for instance, and will also meet the costs of rebuilding if it suffers serious damage.  Building insurance typically covers fixtures and fittings too, so it should pay for the repair of fitted kitchens and bathrooms.

If you own the leasehold to a property, check to see if you are already covered by (and potentially paying for) insurance taken out by the freeholder. When you take out building insurance, you will be asked to provide a “sum insured” – the amount it would cost you to rebuild your property completely.

Just be aware that the rebuild cost is not the same as the amount you paid for it in the first place, or its current market value. Rebuild costs are generally lower than the current market value, so it’s worth getting an accurate rebuild cost estimate so as to avoid overinsuring. The Association of British Insurers provides a Building Cost Information Service online calculator (calculator.bcis.co.uk) that can help you get an estimate. It’s also a good idea to review the rebuild cover amount from time to time, as the cost will rise over time.

If you are letting the property part or fully furnished, you might want to get landlords’ contents insurance as well. This should cover you if any of the beds, carpets, or sofas and so on get damaged. Don’t bother getting this cover if you have let the property unfurnished, as you can’t insure your tenants’ possessions – though you might want to advise that they take out their own insurance for this.

The next batch of insurance policies for landlords is designed to cover shortfalls in rent. Loss-of-rent insurance covers you if something happens to the house that renders it uninhabitable for your tenants, such as a flood. Certain policies may also cover the cost of alternative accommodations for tenants.

Rent-guarantee insurance, on the other hand, is designed to bridge the gap if tenants are unable to pay their rent. The insurance will cover the rent for a pre-agreed period of time, and may include legal expenses in the event that you have to evict a tenant through the courts. If that wasn’t enough, it is also possible to get home emergency cover, designed to cover emergencies such as plumbing and heating problems. And finally, if you own several properties, you can get what is known as portfolio insurance, which will cover several properties in one go.

Given the sheer number of options available, if you’ve got fairly specific requirements, you might want to consider going through an insurance broker. Just keep in mind that you might not need every type of landlord insurance on the market.