PropertyInvesting.net: Property Investment Special Reports

50: Landlord Insurance

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It is very important to fully insurance yourself against loss or damage. You will be in breach of your mortgage if you either do not hold standard building insurance (e.g. against fire, storm, flood, subsidence etc) or let this lapse.

Leasehold properties are normally insured via the Freeholder – it’s important to get details on an annual basis of the insurance schedules and costs. Most flats are leasehold and are therefore insured via the Freeholder, who will charge the insurance premium via the service charges. It’s important to double check that insurance is included in these servces charges and have it demonstrated that insurance is being paid.

For houses (which are normally Freehold) you will be required to get building insurance cover, not only to reduce your exposure, but also to make sure you are not in breach of your mortgage. If you do not have a mortgage, you can elect not to insure the building, but this is a very high risk strategy and all liabilities in the event of fire / storm etc would have to be met by yourself.

If you have a home of multiple occupancy – it is important to make this clear to the insurance company. Also, if you tenants work, do not work, are students or receive benefit – this is all very relevant information for the insurance companies. Also bear in mind that tenants circumstance change and you might find that the tenants are initially employed, but may loose their jobs and thence start to be paid benefits – these details need communicating to the insurance company. They may decide to increase your premiums because of this, if they think their risk has risen significantly.

Two companies that specialise in landlord insurance are Norwich Union (particularly good for multi-occupancy tenants, and those claiming benefits, Tel 01603 622200 and Equity Red Star (very efficient and appropriate for multi-occupancy for unrelated individual workers plus general household insurance, Tel 01277 200111).

If you need to make a claim, it may increase your premiums. If you have many properties, this could add a large amount to your annual outgoings, hence the decision to make a claim should be a considered one. It is akin to having a car and loosing your no claims bonus after making a small claim. Generally, anything under say £3,000-5,000 you should consider organising to repair yourself if you have a sizable property portfolio.

Also, make sure the level of building insurance is high enough. Rebuilding costs can be very high. If you have a mortgage of say £120,000 and the property is valued at £170,000, it's wise to cover for something like £190,000 since demolition and rebuilding costs can be high. If you only insure for below market value, it's likely you would only receive the pro-rata'ed value if it was severly damaged for any reason. In the north of England for example, you might find the value of a terrace in Barrow is £50,000 but the rebuilding costs could be £100,000. 

PropertyInvesting.net hope this is helpful. If you have any comments, please contact us at enquiries@propertyinvesting.net

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