If you’re renting out a property, you may assume that your regular home insurance policy will be suitable. But what a lot of new landlords don’t realise is that it doesn’t always cover you from the specific risks you will face, instead you should have buy-to-let insurance in place. The last thing you want is for something to go wrong and the insurer decides the property should have been insured as a let property. You can end up paying the full cost yourself right when you’re also dealing with a tenant, a letting agent, and repairs that can’t wait!
This is why buy-to-let insurance exists, and why building insurance for a buy-to-let is one of the first things you should get right. This covers the actual structure of the property you’ve invested in, so a fire, flood, or major escape of water doesn’t turn into a devastating bill and months of stress.
Not sure what insurance you need as a buy-to-let landlord? Have no fear. In this blog from East Yorkshire Insurance Brokers we explain what building insurance for buy-to-let properties is, what other buy-to-let home insurance covers you should consider, and why you need them.
What Is A Buy-To Let?
A buy-to-let is a property you own with the intention of renting out to tenants. This could be anything from a terraced house, to a flat above a shop, to a small portfolio of properties across different postcodes each of which is its’ own buy-to-let. Either way, what sets this apart from a typical home policy is that you’re not living there day-to-day, you have tenants that you are responsible for and on top of that, you’re relying on that property to produce income.
This means you’re exposed to more risks as a buy-to-let landlord than a standard home owner, which changes the covers you should have in place. For example, if a tenant has an accident on the property, you could be found liable as the landlord. You also have to think about how tenants live differently to owners. Little maintenance issues can become bigger problems if they aren’t reported quickly, and you’re not there to spot things like a slow leak under the sink before it damages the floor. Buy-to-let property insurance covers the risks you’re simply prone to when you’re a landlord.
Why Do You Need Buy-To-Let Landlord Insurance?
Renting out properties can create reliable income. However it also exposes you to more risks. So you want to make sure you’re protecting your investment, otherwise something could go wrong and your finances could take a huge unexpected hit. The financial fallout from one incident can be far bigger than most landlords expect, especially if the property becomes uninhabitable and you lose rent at the same time as paying for repairs. You could be dealing with a claim and a void period together, yet your mortgage, service charges, and contractor invoices still keep landing regardless.
Making sure you have the correct cover for your properties can be confusing, you don’t want to be paying for something you don’t need because you’ll be throwing money away each month. But, conversely, being underinsured exposes you up to the risk of the insurer not paying out if something unfortunate does occur. Speaking to an insurance broker like East Yorkshire Insurance Brokers can help you get the right cover in place without any of the confusion.
What Is Building Insurance For Buy-To-Let Properties?
Building insurance for buy-to-let properties covers the structure of the property. Think walls, roof, ceilings, floors, permanent fixtures and the parts of the building you can’t reasonably “pick up and move”. If there’s a serious incident, buy-to-let building insurance will pay towards repair or rebuild costs up to the sums insured you’ve selected.
This is where a lot of landlords get caught out, because they confuse the rebuild cost with market value. The rebuild cost is what it would cost to reconstruct the property if it was badly damaged, including materials, labour, professional fees, and debris removal. The market value is what someone might pay for it as an asset. Those numbers can be miles apart, especially in areas where land value inflates property prices.
What Could Happen If you Don’t Have Buy-To-Let Building Insurance
A lot of incidents are out of your control. For example a slow escape of water from a bathroom pipe that the tenant doesn’t notice straight away, and by the time someone flags it; you’ve got water damage into the ceiling below, blown plaster, damaged electrics, and possibly mould starting to take hold. If you don’t have buy-to-let property insurance, that repair bill is on you.
A small kitchen fire can spread into the roof space, or a storm can rip tiles off and let water pour in. These are real incidents that you can’t predict and can leave you with an extremely expensive bill dealing with the aftermath.
The other problem is what happens around the incident. If the property can’t be lived in, you can lose rent. If the tenant needs rehousing, you may have obligations depending on the tenancy and how the situation is handled. If a neighbouring property is damaged, you could face a liability claim. A lot of landlords only realise how connected these risks are when they’re already in the middle of it.
If you do have insurance but it’s the wrong type, you can still be exposed. If your insurer believes you should have had buy-to-let property insurance and you insured it like an owner-occupier home, you can run into policy issues right when you expected the cover to step in.
How Do I Set The Correct Building Sums Insured For Buy-To-Let Landlord Insurance?
A proper rebuild valuation is the cleanest way to get this right, particularly if the property is older, has been extended, is in a non-standard construction, or has features that change rebuild cost. Even a fairly ordinary terrace can become expensive to rebuild if access is tight, if there are structural complexities, or if matching materials is difficult.
Underinsurance is where the “average clause” comes in. Basically, if you insure the building for less than its’ rebuild value, the insurer may reduce your claim payout in proportion to how underinsured you are. This is why guessing a number can backfire. Landlord insurance is there to protect your asset, but it can only do that properly if the sums insured are sensible.
It’s also worth reviewing the sums insured over time. Building costs change. Labour rates change. Materials fluctuate. If you renovated five years ago, your rebuild value might now look very different. A quick annual check, especially at renewal, can prevent you drifting into underinsurance without realising.
What Other Covers Are Under Buy-To-Let Insurance?
Buy-to-let house insurance is usually more than just buildings. Most landlords will have other covers in place for the risks that come from having tenants in the property.
Loss of rent
Loss of rent cover is there for the situation where the property becomes uninhabitable due to an insured event. In this situation where you can’t let it out whilst it’s undergoing repairs, loss of rent covers the income you will miss out on in this circumstance.
Alternative accommodation
If a fire or flood has left the property uninhabitable, as the landlord you’re responsible for your tenants. Alternative accommodation covers the cost of rehousing your tenants whilst repairs are completed.
Property owners’ liability
If someone is injured on your property, as the landlord you could be legally liable. If a tenant trips on a damaged step for example, property owners’ liability covers the legal fees if a claim is made against you as well as compensation costs and medical bills.
Contents cover
Contents cover will cover the cost of your items if they become damaged or stolen. This is especially good to have if you’ve furnished the property before renting it out, as fixtures and fittings can be expensive to replace if the property is broken into.
Property damage
Fire, storm and flood can cause expensive damage to the property. You could even be a victim of malicious damage. But property damage cover will cover the cost of repairing the property if an unforeseen event like this occurs.
Need Building Insurance For Buy-To-Let? Get In Touch With EYIB!
If you’re arranging building insurance for buy-to-let for the first time, or you’re not sure whether your current buy-to-let building insurance is still fit for purpose, it’s worth getting it reviewed. The right policy should match the type of tenants you have, the way the property is let, the rebuild sums insured, and the extra covers you’d actually need if a claim landed tomorrow.
At East Yorkshire Insurance Brokers, we deal with landlords and businesses every day. We’ll talk you through what’s actually included, what’s potentially optional, and where landlords tend to get caught out. You’ll get straight answers, not jargon, and we’ll help you make sure the cover you have in place is correct and reflects the actual risks you may face.
Get in touch with EYIB today and we’ll arrange your buy-to-let property insurance!
Building Insurance For Buy-To-Let FAQs
What is buy-to-let insurance?
Buy-to-let insurance is a landlord policy designed for properties you rent out, combining buildings cover with landlord-specific sections like liability and loss of rent.
What insurance do I need for a buy-to-let?
It’s recommended that you at least have buy-to-let building insurance and property owners’ liability. If the property is furnished, you can add landlord contents, and you should consider loss of rent and alternative accommodation to protect your income in case an insured event leaves the property uninhabitable.
How do I work out the rebuild value for building insurance for buy-to-let?
Use a rebuild valuation where possible, especially for older or altered properties. Don’t rely on the market value, as rebuild cost is calculated differently.
Can buy-to-let house insurance cover accidental damage by tenants?
Some policies can include property damage cover to cover tenant-related accidental or malicious damage.
