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Why is landlord insurance more than normal home insurance?

New buy to let landlords are often surprised their insurance costs more than a normal home policy. And some don't take out a specialist landlord policy but instead rely on their existing cover. As we'll see this is a mistake. But firstly what is the difference between home and landlord insurance?

A homeowner will insure the property they own and live in. They will insure the building itself and its contents. The difference with landlords is that they insure the property they own but which other people (the tenant) live in. The risks (from the insurance company's point of view) involved in both types of policy are very different.

Landlord or home insurance?

Both types of insurance cover more or less the same things. The major element is damage to the structure of the building. This covers fire, storm or flood damage. Typically the policy will cover the cost of rebuilding the property. Rather than the original purchase price.

Both home and landlord insurances will indemnify the property owner against public liability claims. Contents insurance speaks for itself.

Where the policies differ and why landlords insurance is more expensive is the risks involved. Whereas a homeowner occupies their own property and is likely to take great care of the building and its contents a tenant in a rental property is less inclined to do so. The risks are therefore higher for a landlord. And insurance costs increase when the risks are greater.

It is the same with public liability. The landlord has greater risks with tenants being in the property as well as third parties.

But it is the specialist aspects of landlords insurance which really increases the cost of a policy compared to home insurance. And whilst not all are included in every policy a wise landlord will ensure they have full coverage. This could include:

Emergency cover

It is the unwritten law of being a buy to let landlord. If anything is going to go wrong it will do so at the most inconvenient time. A boiler breaking down on the coldest winter night. Or a Sunday evening flood.

This is why emergency cover is such an important part of the insurance policy for many landlords. The policy can cover tradesmen call outs and the costs of repairs. It could also include temporary accommodation for the tenant if the property should be uninhabitable for any reason.

Rent guarantee

An expensive addition to a landlord's insurance policy but protection against non-payers will appeal too many. Naturally, the premiums are high but they do provide peace of mind. But the insurance company will impose a maximum payout. So landlords should carefully consider the expense of this kind of policy.

Legal expenses

Unfortunately something most landlords will need to think about. And most should include it in their insurance policy. Taking legal action against a tenant can be expensive. It makes sense to be covered against the costs.

Tenants and insurance

Landlords insurance covers the property itself. It will also cover the furniture and electrical goods provided by the landlord. But it does not cover the personal belongings and goods of the tenant. Landlords should advise their tenants that they need to take out their own contents insurance.

Legally speaking

Although it is highly recommended landlords insurance is not compulsory. However, the terms of most, if not all, buy to let mortgages will include a clause requiring the landlord to have specialist insurance. Not taking out adequate cover could violate the terms of the mortgage.

The same applies if a landlord only has a homeowner's insurance policy covering their buy to let property. If a claim is made it will be rejected by the insurers. This could result in a big financial loss for the landlord.

Finding the right policy

Although landlord insurance is more expensive than a homeowners policy it doesn't mean you can't find a good deal. Shop around. Use a reputable broker but ensure you only take out the cover you need. You may not need emergency cover or rent guarantee. But landlord insurance will provide the financial protection you and your business need.

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