• The ostrich knows there is a problem to be addressed regarding the insurance needs for his (or her) property rental business, but the ostrich promptly buries its head in the sand … hoping the problem will go away.
• The naked tortoise is obviously vulnerable to many risks and will be “shell shocked” should anything happen to his (or her) property rental business.

(A)   Landlords and Insurance Companies

As the property is being rented, insurance companies have differing viewpoints as to when a tenant is acceptable and the insurance policy can go “live”.

Therefore it is important to check the following points are mentioned when in discussion with the Insurance company being considered for provision of the insurance cover(s) being requested:

(1)    Confirm that a proper rental agreement is in force (for example a short assured tenancy agreement).. often a copy will be requested by the insurance company.

(2)    Confirm that the gas and electrical systems are checked once a year

(3)    Confirm that all furnishings that you provide meet minimum requirements

(4)    Houses in Multiple Occupation (HMO) require that you have meet with the local authority and have implemented all their additional safety requirements

(B)   Tenant Types

Insurance companies find the following types of tenant as most acceptable as long as a proper tenancy agreement is in place:

• Employed
• Professional
• Retired
• Unemployed receiving housing benefits
• Students.

Please note Insurance companies are most reluctant to provide insurance cover for buildings being used as houses of multiple occupation (HMOs)  and buildings housing Asylum seekers.

(C)   Pearls of Wisdom

While the whole world struggles to contend with the effects of the recession that has hit us all in some way, it is sensible, and prudent for landlords, experienced or completely new, to have insurance safeguards in place to cover against a variety of potential risks,  known as perils.

The Perils of insurance Policies

• fire,
• lightning,
• aircraft,
• explosion,
• earthquake,
• storm,
• flood,
• escape of water or oil,
• riot,
• malicious damage,
• theft or attempted theft,
• falling trees and branches and aerials,
• subsidence,
• heave,
• landslip,
• collision,
• accidental damage to underground services,
• professional fees,
• demolition and site clearance costs
• public liability

(C)   Insuring your rental property

First of all do not rely on a normal residential household insurance policy to be adequate for the building insurance needs of a rental property.

At the very least, you must let the insurer know the property is a rental property, if you do not do this and later on you make a claim, you will find yourself whistling in the dark and your pockets will be empty!

(D)   Types of Insurance Policy to consider

Types of Insurance cover that a landlord should consider to protect the rental property, to protect the tenant and to protect the landlord!

• Landlords Building Insurance
• Landlord Contents Insurance
• Landlord Liability Insurance
• Landlords Legal Expenses Insurance
• Landlords Rent Guarantee Insurance
• Landlords Emergency Insurance
• Landlords Loss of Rent Cover
• Landlords Unoccupied Property Insurance
• Landlords Alternative Accommodation Insurance

(1)  Building Insurance for Landlords

With building insurance, it is important to give the insurance company an accurate re-building cost for the rental property.

The best way to obtain this figure is to speak to the surveyor who surveyed your property, or to check with your insurer as to their estimation of the rebuild cost for a property like your rental property.

The cost of being under insured

If your property is under insured (perhaps because you have not updated your rebuild cost in line with the increases in costs for site clearance, repair, renovation and rebuilding of damaged property) you are at risk of being in a position of being under insured and eligible only for a portion of any loss incurred.

At the time you may feel the cost of full insurance was too much to bear,  and your head goes into the sand,  only to find in the event of making a claim,  that your saving on monthly premium has turned into a huge expense!

Keeping your mortgage lender happy

The rental property that you buy may have been bought with the use of mortgage funds from a lender…. If this is the case, before the funds will be released by your lawyer, you must have a suitable building insurance policy set up with the lenders interest noted on the buildings insurance policy document.

(2)  Contents Insurance for Landlords

This type of policy is to protect the items the landlord has left in the property for the use of the tenant / renter.

If the property is “unfurnished”, normally the landlord leaves items in the kitchen such as a fridge, a freezer, and a washing machine for normal domestic use.

The tenant / renter will supply their own contents, and as already covered in my article “Renters in America want the Best Umbrellas“, it is up to the tenant / renter to arrange their own contents insurance.

Obviously if the property is let as fully furnished, then the landlord will arrange the necessary cover to protect all furnishings within the rental property.

This type of cover includes Indemnity cover for all items listed on the policy.

Please note here that if a tenant is injured due to one of your listed items, you normally do not have contents liability cover on the policy, therefore if a claim is made you will be potentially liable to pay for the damages claimed (see next section Landlord Liability Insurance).

On the day a tenant/renter moves into a property they must check and sign an inventory which confirms what items are in the property and what condition these items are in. This document can then be used a s a reference in the future when the landlord or their agent carries out a regular property inspection.

(3)  Landlord Liability Insurance

This type of insurance cover protects the landlord against claims being made in the event of the tenant / renter or a visitor to the property injuring themselves, and it is proven to be due to your building, or the contents you have left in the property, as being the cause of injury.

(4)  Landlords Legal Expenses Insurance

This type of insurance cover gives the landlord immediate access to legal experts who can put into action claims against the tenant / renter relating to:

• Unpaid rent and the costs for its recovery
• Damages to the property by the tenant/renter
• Costs of getting the tenant/renter evicted as a result of a breach of the lease agreement

The cost of legal action for any of the above areas is charged in addition to the money being claimed by the landlord.

The cost of legal action can be substantial, and is charged to the tenant/renter.

(5)  Landlords Rent Guarantee Insurance

The landlord can have a policy in place which will pay a replacement income to the landlord if the tenant/renter fails to pay rent

This type of insurance is becoming more significant as landlords are relying more and more on rental income as being an important part of their monthly pay.

It is now becoming more common that tenants/ renters are facing the threat of redundancy and not being able to pay their rent, therefore this type of insurance helps to protect the landlord from having periods of no rent.

To be able to have this type of cover, you will have to have had a reference check carried out on the tenant using an acceptable Credit Referencing Agency, and depending on the insurance company used, there are often additional requirements to be met.

(6)  Landlords Emergency Insurance

This type of insurance is essential if the landlord does not have quick access to a variety of trades people who can quickly respond to requests for repair work to be carried out.

This type of insurance covers the following trades:

• Electrical :  Emergency repairs to electrical systems,
• Plumbing: Heating or hot water supply problems and drainage problems,
• Property Repair: Security of the property and glazing repair work.

Normally this type of cover is available 7 days a week and at any time day or night.

This gives you, the landlord, and your tenant / renter “peace of mind”

(7)  Landlords Loss of Rent Cover

If an incident has occurred and there is an justifiable insurance claim resulting in you, the landlord, being unable to rent out the property, a Loss of Rent Policy will cover you up to about 20% of the rebuild cost of the building.

(8)  Landlords Unoccupied Property Insurance

This type of insurance requires you to be certain of the meaning of any “small print” in the policy wording.

If the property is empty for more than 14 days, then the cover is sometimes reduced to FLEE cover (Fire, Lightning, Earthquake, and Explosion). Some policies keep you on full cover for 90 days… so check the “small print”

(9)  Landlords Alternative Accommodation Insurance

Should you make a claim for an insured loss, and your property is uninhabitable, you could be held responsible for providing alternative accommodation. If the cost of this alternative accommodation is more than the monthly rent being paid by the tenant / renter, then this will cover the excess amount.

The above is a summary of what types of insurance policies landlords should be thinking about for their property rental business.

Cost is a factor which prevents people taking out insurances,  hoever,  it is certainly worthwhile looking at this article again and deciding which types of policy are most important to you and your property rental business.