Savvy buy-to-let investors make sure they invest in landlord insurance

Brett Alegre-Wood
July 3, 2018

The essential low-cost risk mitigation strategy

When it comes to buy-to-let property, giving someone the run of your property can be daunting. I mean, you don’t even trust your best mate to drive your car. How are you expected to trust people you may never have met to take proper care of your investment property? You know, that box that makes you money and cost you hundreds of thousands of pounds?

Savvy investors know how to minimise any risk when they invest in buy-to-let property. They’ll use professional investment property managers to find, vet, and control tenants. A good property manager will inspect your property regularly, too. But, even then, you can never be too sure. That’s why it’s essential to buy landlord insurance.

Why landlord insurance and not home insurance?

Many beginner investors think that home insurance will cover their buy-to-let property. It’s a little cheaper than landlord insurance, too. But, if something were to go wrong and you needed to make a claim, you’ll find that the insurance company won’t pay out. Not money saved, after all.

Both home insurance and landlord insurance do similar jobs, but landlord insurance is specially designed to cover the extra risk associated with not being the resident of the property yourself. The main differences are that landlord insurance:

  • Only covers items that belong to you, and not the tenant
  • Covers accidents that happen on the property and for which you are legally responsible (public liability)
  • Can include clauses to protect you against the default of rent payments

What protection do you need from landlord insurance?

As with car insurance, where protection ranges from basic (third party) to comprehensive (covering you, your passengers, and damage to your vehicle, and can include protected no claims), landlord insurance can be customised to suit you.

It works in three areas:

  • Dwelling – covers damage by fire, flood, and accident, etc.
  • Property – covers damage and loss of your personal property (for example, if your property is rented furnished)
  • Liability – covers injuries on the property for which you are held responsible

Why you must have liability cover

If your tenant has an accident in your property, you can be sued. If the injury is deemed to be your fault, you could end up paying thousands in compensation plus court costs.

If your home becomes untenantable because of a fire, flood, or other similar events, and you are deemed liable, you will also be liable for the cost of housing your tenant while your property is made fit to live in. More money down the drain.

It’s not only wise to have liability insurance, it’s essential.

Tenant default insurance

Another cover that I would recommend is tenant default. If your tenant stops paying the rent, how will you ensure your mortgage is kept up to date and you don’t lose your investment? Most buy-to-let investors keep an adequate residential investment property cash reserve to cover a void period. But what if the tenant doesn’t pay rent for two or three months?

Can you afford to take the ‘it won’t happen to me’ attitude? There are all sorts of reasons why tenants might suddenly stop paying rent. No one expects to lose their job, suffer a long-term illness or injury, split up from their partner, or a host of other life-changing events.

According to Your Move’s England and Wales Rent Tracker in May 2018, 9.4% of all tenancies are in arrears. Tenant default insurance kicks in after a set period, paying the rent you may need to cover your costs.

How much does landlord insurance cost?

How much your landlord insurance costs depends on several factors, but you should expect to pay between £200 and £300 annually. This can be deducted from your rental income to reduce any tax liability. Factors that insurance companies consider when quoting the premium include:

  • Location (local crime figures, susceptibility to flooding, etc.)
  • Length of the lease (short-term tenants are riskier)
  • Property value
  • Rental income
  • Security features
  • History of claims

How to save on the cost of landlord insurance

There are things you can do which could reduce the cost of landlord insurance. For example:

  • Keep your property well maintained
  • Don’t allow smoking
  • Don’t allow pets (or if you do, insist that the tenants have the necessary cover)
  • Include safety and security features in the property
  • Keep claims to a minimum

Must you have landlord insurance?

There is no legal requirement to have landlord insurance, but it just means sense, doesn’t it? It’s best to be safe than sorry, and it’s a great way to reduce tenant risk. You only need one accident in the property, or one good tenant to turn bad and stop paying their rent, or a burst water pipe to flood your property, and it could cost you thousands or worse. Is it worth the risk?

Building a great property portfolio isn’t only about buying in the best places to invest in property UK. Long-term success in property investment requires long-term strategies. To learn more about these strategies, book a property investment consultation by contacting Gladfish today on +44 207 923 6100

Live with passion and fun,

Brett Alegre-Wood


Buy-to-let property

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