Sunday, 30 November 2008

Landlord Insurance

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". 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. I remember at the start of my career over 30 years ago it was difficult to take out insurance for Besdit properties - called HMOSs (Houses in Multiple Occupation).

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.

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.
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.
Landlords and Tenants make sure you keep your property and possessions insured.

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