Insuring Rented Properties

Index

Introduction

A rental property is a substantial investment and it is important that it is protected by proper insurance cover. 

Most household insurance policies will be unsuitable for landlords, who will need a specialist policy designed for rented property. What features ought you look out for, and what else needs to be borne in mind?

1.  Duty to disclose all relevant information

First, it should be made clear that, whatever type of insurance you are taking out, you have a duty to give your insurers all information about the property which might influence their decision to grant you insurance or the price at which they would offer it.

So if you use an ordinary household insurance policy and don’t tell your insurers that you are letting the property to tenants, then they will be entitled to refuse to pay out if you have a claim.

Your insurer must know that the property is to be let.

You should also answer all questions on the application form honestly, and provide the insurers with any additional information they request, for example regarding the previous claims history.

Again, failure to do this will entitle the insurers to refuse pay out should you have a claim.

You also need to keep your insurers informed of any important information about the property itself, for example, if there are any signs of cracking developing which might suggest subsidence.

Plus you should let them know if you are doing substantial building works, as this also may affect your cover. 

Cover for specific tenant types

Even if your insurers know that the property is to be let, or the insurance is a special product for landlords, you need to be sure that it is suitable for your particular situation.

For example, some policies exclude cover for students, tenants on housing benefit/local housing allowance, and houses in multiple occupation.

Also common is exclusion of cover for lettings to asylum seekers and to Local Authority referrals.

The reason for this is that insurance companies prefer a landlord to be in control over who is occupying the property, whereas with asylum seekers or LA referrals you normally have to take the tenants the company or local authority allocate to your property.

Also, these tenants are sometimes perceived by insurance companies as being a higher risk (although in fact, they are often very good tenants).

Cover will normally be available for these tenants, however, you must tell your insurance company or broker about them (unless the description of the policy makes it clear that they are included), and you may need to pay a higher premium. 

What will the cover include?

You will want a policy to be ‘all risks’, you can then look at the exclusions and see what is not covered. You can then rest assured that everything else is.

One of the main exclusions will be damage as a result of war, this is always excluded. 

So far as losses due to acts of terrorism are concerned, some policies will allow this for some types of cover (for example for property owners liability) but with a restricted cover. Even if it is excluded from a standard policy, cover for damage due to a terrorist attack may be available on request but again with a higher premium.

The detail of the policy may also exclude damage caused by:

  • latent defects (i.e. if something was already damaged at the time the insurance cover was taken out)
  • wear and tear
  • frost
  • vermin or insects
  • malfunctioning equipment such as boilers
  • any form of subsidence or landslip
  • theft or damage done by the landlords' employees

So check for these.  Again, if any of the exclusions in a standard policy worry you, speak to your broker or insurer, and it is very likely that cover can be arranged, albeit for an extra premium.

Finally, on exclusions, malicious damage done by the tenants is often excluded, and if cover is provided there will normally be a higher excess.

The reason for this is that there is a greater risk of this sort of damage happening, plus the malicious damage may actually be as a result of bad feeling between the landlord and tenant.

If the property is being let furnished, you will have to take out additional contents cover. This can be more expensive than buildings insurance because the chance of damage being done is greater.

All landlords insurers will offer this cover as well as buildings insurance. Note that cover will probably be excluded for:

  • cash, cheques, and the like
  • especially valuable items such as rare books, works of art, antique furniture, or valuable china over a specified limit (for example £1,000)
  • computers and similar equipment
  • growing crops or trees

unless special arrangements are made with your insurers.  

There are also more specific problems which landlords may encounter.  For example what if the tenant is made homeless as a result of the building being damaged? You need to make sure that your policy will include the cost of temporary re-housing for tenants if the worst happens - although if your tenants have a tenants insurance policy this may be provided as part of their insurance.

A good insurance policy will also cover the rent you would have received during this period (subject to a limit which will normally be calculated with reference to the total sum insured). Note that this will only be for lost rent as a result of the property being damaged by an ‘insured risk’. It will not cover rent during ‘voids’ or if a tenant fails to pay!

Also, a rented property is sometimes left empty longer than a private home, as it may be some time before a new tenant is found. For example, properties let to students are commonly left unoccupied over the summer.

Most household policies will refuse to handle a claim for property left unoccupied for more than 30 days.  With a specialist landlords policy, it is standard practice for cover to be provided for up to 90 days between lets, although it may be only 60 days from the start of the policy.

However, if you need to leave the property empty for longer, you will normally be able to arrange longer cover by speaking to your insurer or broker.  

Note that if your property is unoccupied because major building works are being carried out, it is usually best to speak to your insurers about this beforehand, just to confirm that your cover will continue during this period.  

Liability cover

A landlord also needs to have two types of liability cover:

  • 1. Property owners liability

This covers you for claims in respect of loss and personal injuries suffered by tenants and visitors to the property. For example, if part of the roof caved in and a lot of people were seriously injured, the sums claimed could be very substantial. Landlords really need to have cover of up to £5,000,000.

This seems a lot, but compensation for serious injury for a young person who might need nursing for the rest of his life (plus compensation for loss of income) can work out very expensive indeed.

  • 2. Employers liability cover.

If you are a landlord with no regular employees, you may think that you do not need this. However, if a property owner engages a person to do work for them on a labour only basis, even if they are paid “cash in hand” (which is not advisable), that person can in law be regarded as an employee.

The actual tests that a court might apply to determine whether a particular person is an employee rather than an independent contractor are rather complex but generally, they would consider a person to be an employee if:-

  • They are paid just for providing personal labour services and do not provide materials needed to complete their tasks (these normally being provided by the property owner).
  • They are paid on a time spent basis i.e. by the hour or by the day.  
  • The property owner directs how he wants the work done and exercises some measure of supervision, provision of tools etc.
  • The property owner has the power to dismiss the person if their work is not up to a satisfactory standard, and
  • The person works for the property owner on a regular basis, certainly if they spend a significant amount of their time working for one person.

Apart from the possible vulnerability to a civil claim for damages, non-provision of employers’  liability insurance is a criminal offence so it is important that this is provided for. By law, this cover must be for a minimum of £5,000,000.

Note that landlords will also be liable not just for injury to the employees themselves, but also for injury and losses their employees may cause to other people while they are working for you.

So if as a result of electrical work being done to a property by your electrician a serious fire is started which damages not only your property but also adjoining property and occupants, this again could result in a very substantial claim, for which you, as the electrician's employer, would be liable. 

Other important points

The sum insured.

It is very important that you insure your property for the proper sum and do not try to cut costs by insuring for a lower value. If you do this, and if there is a claim, the insurer will take the view that you have only insured a proportion of the value of the property, and so you will only get a proportion of your claim paid! You can find out the proper rebuild value of the property from your surveyor.

If you are in any doubt about this, you should speak to your insurers or broker about it.

Deductions.

It is normal for the first part of any claim to be paid by the policy holder. The value of this for landlords policies will vary from to £100 up to £500 or even more.

Generally, you will get a more competitive premium if the deduction is for a higher sum.

Other insurance

As well as buildings and contents insurance, landlords also sometimes take out legal expenses insurance and rent guarantee insurance.

Legal expenses insurance will cover you for any legal costs relating to the tenancy (most common are for claims for possession).

Landlord-Law members may need this less than other landlords because of the wealth of information on the site on this topic, plus using the Landlord Law DIY Court Eviction Guide may prove more economical in the long term than the cost of legal expenses policies over many years (assuming you do not have to evict too often!).

Also note that with a legal expenses product you may have little choice over the firms of solicitors used to do the eviction work, as the firm will have to be a member of the insurance companies ‘panel’ of solicitors. However, you may be happy to pay the premium for peace of mind.

Rent guarantee insurance covers the rent payments in the event of the tenant failing to pay. You may consider this necessary if it is very important to you that your rent is not interrupted.

However cover will be normally dependant upon the tenants being checked out and approved by a professional reference company (in which case the tenants will be less likely to cause a problem).

Plus you will have to comply fully with all the terms of the policy such as making regular rental demands and submitting claims within a time period, or your claim may be rejected. Needless to say rent guarantee insurance does not normally come cheap. 

Conclusions

I always recommend Alan Boswell Insurance (I am one of their introducers).  They specialise in landlords insurance and provide insurance for many landlords associations. However, there are other good firms out there.

I would suggest though that you avoid the cheaper policies.  Often they have many exclusions and you could find them more expensive if they fail to cover your claims becuase of this.

It is best to speak to a reputable broker before committing yourself, as they can advise you and make sure you have the correct policy for your needs.  For example with leasehold flats it is unwise to rely solely on the freeholder's insurance - you need to have cover for your own fixtures and fittings (there is an article on the Landlord Law Blog about this here).

If you want more information about insurance, I suggest you take the free online course here which I developed with Alan Boswell staff and which covers issues not dealt with here.  Alan Boswell staff will also be pleased to advise on your options.

To find out more about Alan Boswell insurance generally click here.

If you have taken care in the choice of a proper and suitable policy, and if you have been completely open and honest with your insurers, you will then be able to relax, knowing that your valuable investment is covered, and that you will be properly looked after if disaster strikes.

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