The issue of landlord insurance is often viewed as a necessary evil and often judged solely on price.
Research suggests that as many as half of all accidental landlords have not changed their homeowner's policy to a landlord policy - effectively leaving these landlords uninsured. Many did not realise that they required specialist insurance but a worrying 11% chose not to switch to a landlords policy, believing it to be too expensive.
Insurance aimed at owner-occupied properties will not be suitable for rented properties. If you do not declare to your insurance company that a property is occupied by tenants, this is likely to invalidate the insurance policy and any claim made will either be refused or will be reduced. The insurance policy may have conditions attached governing the type of tenant that the property may be rented to.
Buildings insurance is required to cover the risk of damage to the structure and permanent fixtures and fittings of a building, e.g. as a result of flood. Tenants are usually responsible for providing their own contents insurance to cover their personal belongings; a landlord cannot insist that they do. However, if household goods are supplied by the landlord, contents insurance should be taken out to cover loss or damage to these e.g. cooker, carpets, curtains, etc.
There are also special policies for landlords that provide cover for loss of rental income, or the cost of temporary accommodation where a property is made uninhabitable as a result of one of the risks insured against. The policy should also include Public Liability cover.
The insurance market is very competitive and it pays to shop around to find best value for money. Landlord organisations may offer lower cost insurance to their members. Whilst price may dictate the final decision the policy should offer the correct amount of cover for your needs.
To reduce costs insurers control risks by increasing the number of Conditions or Warranties within the policy. A Condition is a clause within a policy that must be complied with; otherwise the insurers have grounds to avoid paying out against a claim because the contract has been breached. A Warranty is a clause that is worded so as to void the policy following a breach.
The floods in Boston in December 2013 showed that having landlord insurance was vital. However, with concerns over climate change and with more claims for flood and storm damage over time, reduced cover is going to become more prevalent.
What can you do to minimise risk?
Managing rental properties properly is critical. Using the insurance policy to try to cover maintenance costs is always going to push up premiums as it leads to excessive numbers of claims and may even result in landlords being unable to get comprehensive cover at any price. It is possible to take out separate cover for boiler and heating breakdown as well as other services such as drainage, often referred to as landlord emergency cover through some utility companies and insurance providers.
There are a number of actions that a landlord can consider to minimise insurance premiums, many of which should already be in place:
Always request references and make enquiries concerning any prospective tenant.
Never accept cash upfront as payment, as this is a good indication the tenant does not want the Landlord around to witness their intended use of the property. Examples of this kind of behaviour are sub-letting the property or using it as a cannabis farm which can result in extensive damage.
The landlord (or their agent) should carry out regular inspections of the property to identify any repairs that may be required and to check whether the tenancy conditions are being met. It is good practice to make these visits quarterly although visits can be made at any other reasonable time if the tenant reports a problem. Landlords (or their agent) must give the tenant at least 24 hours written notice of any planned visits.
Where regular inspections do not take place, damage to a property will not be discovered until sometime after it was caused. If, in the interim, the policy has been moved to a different insurer it becomes unclear which insurer the claim should be made with. Also, all insurance policies have conditions relating to the timeframe in which a claim can be made. Where the damage has been caused by the tenant, they may be reluctant to report it; if the damage wasn't caused by the tenant, it would be unrealistic to expect them to submit a full report for an insurance claim - therefore regular inspections, with proper notice to the tenant, are important.
During cold spells care needs to be taken to ensure the property is adequately heated. Where it is known that the tenant is intending being away from the property, they should be encouraged to leave the heating on at a low temperature. Alternatively, if the tenant is going to be away for a long time, by mutual agreement it may be safer to turn off the mains water supply and drain the water to prevent burst pipes.
Although insurers are broadly obliged to offer flood risk insurance at an affordable premium under the Statement of Principles agreed after the floods of 2007, they will still take steps to minimise risks. Sophisticated flood mapping tools allow them to analyse their exposure to flood risks. Properties deemed at high risk face punitive claims excesses and conditions may be included in the policy to mitigate risk. A landlord can help matters by:
- Assessing the rental property's flood risk by referring to the flood maps on the Environment Agency website. If the property is in a high risk area the insurer might ask the owner to fill in an insurance related request for information (IRR).
- Consider taking flood prevention measures such as:
- Installing non-return valves on drain pipes
- Fitting flood barriers to doors and windows
- Installing self sealing covers on air bricks and vents
- Coating brickwork with a waterproof membrane
- Raising electrical sockets
- Tiling the floors in downstairs rooms
Both landlords and tenants can register for the Environment Agency Floodline Warnings Direct free service that provides flood warnings by phone, text or email. This will ensure that the landlord and the tenant would be warned in advance about any potential flooding and can arrange to take appropriate action to protect the building and the contents as well as the lives of the occupiers.
The Environment Agency strongly recommends that landlords make a flood plan and share this with the tenants. More information can be found on the Gov.uk website - see Useful links.