Insurance by Philip
Suter - November 2005
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.
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.
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
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.
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
: Homesure leaflet from January 1991
something goes wrong with the property, failure to insure could leave the owner
with nothing to show for the money that has been invested.
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.
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.
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.
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.
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
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.
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.
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.
companies now offer a low cost buildings policy that will also cover loss of rent
and re-letting costs following insured damage.
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.
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.
Letsure logo of the 1990s early 2000 era
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.
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.
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%.
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.
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.
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)
Suter jml Property Services November 2005
to letting or renting?
a look at our landlords advice
- Tips for landlords
and tenants advice and Tips
for tenants guides
do I need Landlords Insurance? and
Article on Landlord
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