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Landlord
Insurance by Philip
Suter - November
2005
You
have just spent a lot of money buying a property - either
it is your home and you are going to work overseas for a while
or in a different part of the country. It might be an investment
property a "buy - to let" or a buy to let via a SIPPs Property
Pension. You might just have inherited the property or decided
to move into your partner's property. For any of those reasons
you must make sure the property is insured. If you
are buying just one property purely to let out, you must treat
it as a business - keeping proper records for tax authorities
etc and like running any business - you need to run this in
a professional manner and this means having adequate insurance.
If
you don't what happens if the roof blows off - a tenant falls
down stairs and breaks a leg - the pipes burst. Some of these
might well be covered if you own an apartment that has includes
insurance with the block management - maintenance - ground
rent charges. Most apartment blocks have this, however they
might not cover theft, or water damage to fixtures and fittings
in the event of a burst pipe. It is not a legal requirement
to have Landlord Insurance, but if your tenant fell down stairs
you could be facing a high claim at the local law court.
If
you own a house or bungalow then you will not have this type
of insurance. You will have to make your own arrangements.
When a there is a mortgage on a property the lender will naturally
insist that the building is insured as part of the mortgage
deed. The property owner will often have to use the lenders
insurer, however like the insurance situation with an apartment,
it would normally be very rare for the insurance to cover
an contents. 85% of private UK Landlords have mortgages supporting
their investment. The interest still has to be paid even when
the rent isn't.
When
you let out your property you must let the insurance company
know. (If the property is mortgaged then the lender should
be advised and you should get their agreement in writing).
You could have a situation whereby there is a claim for your
property, the insurance company will not honour this because
it was not the owner and immediate family living there….it
was let out. If the property is your normal domestic home
and you and your family are moving to Italy to work for a
couple of years and you are letting it out, you must get the
insurance changed.
You
might also find that your insurance company is not interested
in insuring the property when it is rented out (even if you
have been living there and you are moving out for a year or
so for work reasons). For many years many insurers did not
want to take on this type of business, particularly when a
property could be empty for periods when it was not let. A
couple of companies in the UK get involved in this as they
saw it was a real problem for property owners and although
the UK buy - to -let business has really grown since the 90's
before that there were many investors in residential property
either owning "long term protected lets" and after the introduction
of the Protected Shorthold Tenancy from the 1980 Housing Act,
similar types of properties as today were then being bought
and let out. In the early 1990's Thomas Winter Insurance Brokers
arranged a new product Homesure that was later to become
Letsure with the merger of Winter Richmond and then
came along a competitor Homelet. Letsure and
Homelet are the major companies involved in the UK
rental property insurance market
. Left
: Homesure leaflet from January 1991
If
something goes wrong with the property, failure to insure
could leave the owner with nothing to show for the money that
has been invested.
Insurance
premium will vary from area to area in the UK. Your post code
can effect the premium you pay. You will pay more in areas
will be in area that has higher crime statistics, or where
a property is located in an area that is liable to flooding
for example.
There
is not a lot you can do about this as your rental return might
just be just the same as in a property 5 miles away that is
in a different postcode. One note of consolation is that subject
to the Inland Revenue's agreement, you can deduct insurance
expenses from the profit you make on a letting, so a higher
premium will mean you can deduct a higher expense.
Level
of Cover:
Insurers will only pay as much as the building is insured
for so if it is not sufficiently covered and the roof suffers
storm damage you could end up paying a lot yourself. You will
often have to pay an excess on a claim, but the amount depends
on the policy purchased.
A
lot of insurance companies will offer index link policies,
but for a buildings policy it is most important to have the
right cover from the start. You will normally have to provide
the square footage and other details. What the building is
constructed of, type of roof, number of storeys etc. Many
insurance companies have major concerns over wooden structures.
Some
companies now offer a low cost buildings policy that will
also cover loss of rent and re-letting costs following insured
damage. It can be worth while looking at alternative policies.
Internally
for contents is often more simplified? A quick check through
a retailer's catalogue or on the web will give you an indication
of price for furniture and fittings and if you have recently
purchased equipment for the property you should have kept
the receipts (you should have them for your Tax Return anyway).
Always make sure you have adequate contents cover.
A
point often overlooked by Landlords is that they think why
do I need contents insurance? The property is being let
unfurnished. That might be the case; you however are most
likely providing carpets, curtains, kitchen appliances etc.
What
happens if the ceiling collapses as a result of a burst pipe?
The buildings insurance will normally pay for the repairs
decoration….but not for replacing the carpets and soiled
curtains. To overcome this problem, specialist rental insurers
have introduced limited contents cover now.
Some
companies now offer a low cost buildings policy that will
also cover loss of rent and re-letting costs following insured
damage.
Legal
Expenses -
Tenant won't pay the rent - Tenant needs evicting. Even when
using a professional letting agent, problems with tenants
can occur. They might have had first class credit and employers
references at the tenancy start, however in many cases the
tenants personal circumstances have changed during the term
of the tenancy. Situations like loss of their job, failure
of their business, a relationship break-up, accident or illness
will effect the tenants ability to pay the rent or their inclination
to move out at the end of the tenancy.
All
these situations can be resolved but will usually involve
a Court hearing and solicitors costs. Legal costs like solicitors/barristers
fees, Court and bailiffs' costs can be expensive. It can cost
£100 for less than 45 minutes of a specialist solicitors time
on a normal fee paying basis. The "average" legal cost of
a possession hearing in 2001 was £785, many cost well over
£1,000. Legal expenses insurance will usually cover all of
your legal costs. The average policy in 2005 costs £100.
Left:
Letsure logo of the 1990s early 2000 era
Rent
Guarantee Insurance -These policies are invaluable for
many landlords. As a tax deductible premium this will guarantee
you receive the rent you are expecting from your property
regardless of your tenants personal circumstances, ability
or willingness to pay the rent.
If
you have a mortgage on the property or have calculated your
rental income verses your outgoings this will ensure you do
receive your rent. Most such policies will include the legal
expenses, as detailed above. You will receive your rent and
the legal fees to obtain vacant possession will be covered.
Policies
will usually guarantee your rental for a fixed period, typically
6 or 12 months. Some policies will provide additional cover
once you have obtained vacant possession until you are able
to re-let your policy. The costs vary from a fixed cost policy
or are commonly rated as a percentage of the annual rental
figure, typically 3-4%.
Emergency
Assistance Insurance -
So something goes wrong - Failure of the electricity supply
- Failure of the cooking facilities - Lost keys - Plumbing
problems - Leaking roofs or guttering - Security of doors
and windows. This type of cover will provide assistance for
the landlord and the tenant in the event of an emergency at
the property Policies will normally provide parts and labour
cover up to a specified amount and either the landlord or
the tenant can call a 24hr 365 day Helpline.
The
Financial Service Authority (FSA)
regulates British insurers. Their policies now must provide
a policy summary or Key Facts for any available insurance
they offer. They also have to state this on their documentation
and web sites. UK web agents cannot now necessarily give advice
on the phone or by email unless they are authorised to do
this.
Philip
Suter is a Director of JML Property Services, a UK based company
offering Insurance products on line and a holiday home advertising
service and management training with in the uk. He is a very
experienced property consultant with over 30 years work in
the Residential letting business and served in the national
council of ARLA. He is a Fellow of the National Association
of Estate Agents (NAEA) and a Member of The association of
Residential Letting Agents (ARLA)
Article
Source: http://EzineArticles.com/?expert=Philip_Suter
©Philip
Suter jml Property Services November 2005
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