Landlord Insurance – What You need to know?
Do I need special landlord insurance?
The insurance risks associated with letting residential property can be substantial and are different to that of owner-occupiers. Do not under estimate the importance of having the right insurance for your investment property. Some landlords make the mistake of relying on normal household cover – this is not adequate. An investment property requires specific investment property (buy-to-let) insurance.
Always make sure that your insurance broker/company knows that the property is rented to tenants, ask what the cover restrictions are, for example –
Is malicious caused by the tenant covered?
How long can the property be unoccupied before cover is restricted?
Is liability for injury to /caused by the tenant covered?
Is liability to tradesmen covered?
Is loss of rent covered?
What type of insurance cover do I need?
The key areas of cover required for investment property are:
Third Party Liability
Loss of Rent Cover
Third Party Liability
First and foremost, the landlord should be concerned about the risks now posed by third party liabilities. Make sure you are covered against death or injury to tenants and third parties visiting your property e.g. visitors, workmen etc.
If your property is insured under a block policy ie an apartment this policy will only cover liability arising from accidents in common areas ie the hall, stairs and landing. It will not cover accidents occurring inside the apartment. For liability cover to apply inside the apartment you must have content insurance but check that it covers liability to the Tenant as well as third parties (visitors, workmen etc.)
The buildings sum insured should be equal to the cost of rebuilding the property from scratch if it is completely destroyed. (You should allow for the cost of debris removal as well as architect and surveyors fees) This is known as the reinstatement value.
Note: This is not the same as the market value of the property.
The ‘average clause’ in insurance means that if you do not adequately insure your property you may end up at a significant financial loss in the event of a claim.
For example: The full reinstatement value of a property is €200,000. The property owner only has buildings cover of €100,000. Following damage to the property to the value of €50,000 the owner claims against his insurance. However as the property is only 50% insured, he will only receive 50% or €25,000 from the insurance company and not the €50,000 – in this case the property owner could end up €25,000 out of pocket.
Always check you have sufficient buildings cover. Guidelines on how to estimate the rebuilding costs for various types of residential properties in different parts of the country can be obtained from the Society of Chartered Surveyors (see www.scs.ie).
Unlike owner occupied properties, landlords do not normally need full contents cover. Landlord’s need contents cover for items that they own such as electrical appliances, carpets, curtains, blinds etc. A rental property would typically involve a much lower contents figure than an owner occupied property, as the tenant is responsible for much of the contents.
Always check that your policy provides cover for replacement of contents on a new for old basis. Many polices now offer a contents sum insured based on a percentage of the sum insured on the building e.g. 20% of the building sum insured.
Always make sure to inform tenants that they are responsible for insuring their own contents.
MOST INSURANCE POLICIES DON’T COVER MALICIOUS DAMAGE CAUSED BY THE TENANT – ALWAYS ASK YOUR INSURANCE BROKER/COMPANY IF THIS IS COVERED
Loss of Rent Cover
Most polices for investment properties now include cover for loss of rent if the property is badly damaged or destroyed and this results in the property being unsuitable for occupation by tenants. As most landlords rely on the rental income to cover their mortgage payments, it is vital to ensure this cover is included on your policy.
Check that the Loss of Rent provided by your policy is adequate – many insurers automatically give 15% of the building sum insured. Content only policies often don’t provide this cover so check that the small print.
Always remember to check what excess applies to the policy you are considering. The excess is the amount you must pay when making a claim – this can vary from policy to policy. For example, if a policy has an excess of €250, the policy holder must pay the first €250 of any claim. Usually the higher the excess the cheaper the premium.
What about apartments?
In an apartment building, the building insurance should be covered by the annual management. You should always check with the management company that the insurance they have arranged meets with your requirements – ask them for a copy of the policy. It is vital to take out a separate policy to cover third party liability, loss of rent and contents cover.
Does the type of tenant affect the premium?
Insurance companies will often ask what type of tenants will be renting your property (e.g. professionals, students, family, couple). Some insurance companies will not provide quotes for properties rented to students. If the type of tenants change, for example from professionals to students, make sure you inform your insurance company.
How can I reduce the premium?
• Shop around – Check that your building and content sums insured aren’t too high
• Fit smoke alarms
• Fit fire blankets and fire extinguishers
• Install an alarm
• Fit security locks
• If you have a number of investment properties negotiate with your insurer and see if they will give you a bulk discount.
Is cover index linked?
Most insurers will index link the amount of policy cover to the Consumer Price Index so that you maintain an accurate insurance value over time. However it is the landlord’s ultimate responsibility to ensure they are adequately insured.
What factors affect the premium I pay?
Insurers assess risks in different ways, depending upon their formulae for the risks involved. Insurance is all about statistics and claims. If your properties have factors that attract more claims, or you personally have a high claims history, then inevitably your premiums will be higher.
Typical factors would include:
• The location of the property – all insurers use location to assess the risk. Some areas, for example, with high crime rates, or if it’s on a flood plain, will attract higher premiums.
• The type of tenants you let to and the type of property.
• The age of your property might have a bearing, as older building materials and standards of construction tend to pose higher risks.
• A personal history of multiple or large claims.
Always make sure that the insurance company is aware that the property is a rental property – failure to do so could result in the policy being null and void in the event of a claim.
Where do I get insurance cover?
There are now a large range of insurance brokers offering buy-to-let insurance. The number has increased in recent years and the market has become more competitive. Choose a broker that has experience of investment property (buy-to-let) policies – they will have experience in identifying the best policy to meet the landlord’s requirements.
Always shop around – a number of web-sites now offer on-line quotations for buy-to let landlords.
Tip: Install a fire blanket and fire extinguisher; this may reduce your premium.