Let’s assume that you own a property and decide to rent it out as a vacation cottage to a family visiting the area. You own a comprehensive home insurance policy on the property which you think is enough to protect your building and its content.
Within a month of stay, your tenant leaves a burning cigarette near an electrical outlet which results in an electrical fire. The electrical fire completely damages one room, destroying all the appliances within it. Knowing the extent of the damage and financial loss, you submit a claim to your insurers.
But, to your worst nightmares, you get a refusal from the insurer.
Because the home insurance is mostly applicable to the homeowner-inhabited properties. As novice landlord, you may not be aware of this fact that as soon as you rent out your property, your homeowners-inhabited home insurance policy becomes invalid.
You are apparently in the plain sight of evil with no protection against property damages or content malfunction. But, this is not the case. All you need to do is to invest in a landlord’s policy or upgrade your home insurance policy to return to your safe shell.
What is landlord insurance policy?
Landlord insurance is a specially designed policy for landlords to protect the rental properties against damages and financial losses. This type of insurance policy is for the tenant-inhabited homes, apartments or condominiums and covers for the liability, damage caused by the tenant, and all other additional factors such as weather, theft or fire.
So, the landlord policy is the major line of defense for rental properties.
You can get in touch with your insurance provider or an insurance broker to guide you about the right insurance policy for you.
Difference between Home Insurance and Landlord Insurance Policy
To make the difference crystal clear if it already is not, the home insurance is for owner-inhabited homes and the landlord insurance is for tenant-inhabited homes.
The landlord insurance is usually more expensive and extensive than home insurance considering the higher probability of damages, loss of income or personal liability on a rental property. The higher premium also has to do with the fact that the property can be rented out many times to new tenants and would require more frequent maintenance.
What Does Landlord Insurance Cover?
As evident, no single landlord policy can be applied to all rental properties. It all depends on your requirements, scope of the policy and your insurance company.
However, an ideal landlord insurance policy should cover the following types of policy.
1- Liability Coverage
Liability coverage is part of almost all types of property insurance. It covers for the injuries and legal fees in case of an accident on your property.
For example, your tenant’s visitor falls from the marble stairs and breaks his arm. You can find yourself in the midst of legal and medical mess where hefty medical bills and legal fees await you if the person decided to pursue the case.
Who will pay for these bills?
If you have liability coverage as part of your landlord’s insurance, you do not need to worry. Your insurance policy will take care of the expenses while you enjoy peace of mind.
2- Tenant Damage Coverage
Tenant damage is a nightmare for almost 40% of the landlords in the United Kingdom. But, no matter how much it is hated and no matter how many instructions you give to your tenants, it is frequent, expensive and messy.
Almost 50% of the landlords report encountering tenant damage to their property, and among the things that tenants leave behind, this requires the costliest cleanup.
The good thing is that the tenant damage is usually covered by the landlord insurance. Whether there is a broken water pipe in the toilet, a piece of kitchen shelf has come off or even worse scenario, your insurance will pay the decided percentage of repair or replacement cost.
3- Property Damage Coverage
Apart from tenant abuse, if your property undergoes mistreatment or sustains damages due to any of the reasons such as snow, storm, or theft, your landlord’s insurance policy can come for rescue. Even though many of the insurance policies include these types of property damages; it depends on the scope of the individual policy.
If you have purchased a cover for losses due to the theft, the insurance policy will replace the articles that have been stolen, or if you have purchased a cover for snow damages, your roof can be repaired with the claim money.
4- Loss of Rental Income Coverage
This is one of the most distinguished aspects of the landlord’s insurance policy. If your property becomes inhabitable for any reason such as rodent infestation, mold, flood, the insurance policy will compensate some or all of your lost rental income. It means that your insurance policy will pay you for the duration in which your property cannot be rented out.
How does landlord insurance work?
Landlord insurance policy works just like any other insurance policy. When you face financial loss or personal injury, you file claims to your insurance company. The insurer sends a team to examine the damages and their causes to ascertain who is responsible for the damages and if the damages fall within the scope of your policy.
If everything goes well, the estimated value of financial losses is calculated and approved by the insurance company. By the terms of the contract and your excess, the reimbursed amount is released to you.
An example of this is that your tenant ruins your carpet with small holes due to cigarette ash and leaves nail color splashes all over it. You will need a replacement for the carpet before you rent out your property again. The estimated value for the replacement of the carpet is £1000. You own a comprehensive landlord insurance policy in which your excess to claim ratio is 40:60. It means that your insurance company will pay £600 in the claims while you pay only £400.
What does landlord insurance cost?
You can find the cost of your landlord’s policy based on your requirements and comparing cheap quotes from different insurers.
A landlord’s insurance premium depends on some factors. The insurance brokers and companies use complex formulas with different factors to calculate the value of your insurance policy.
Here are some of the factors that can affect the cost of your policy.
Size of the property: The size of the property is factored in to determine the value of insurance.
Area of the property: The areas with higher theft rates have a higher premium.
Year of Construction: If your property is old, you can expect a higher premium due to more frequent maintenance requirements.
Security: The properties with additional security system such as secure lock and CCTV have a lower premium as the security lowers the risk of theft and burglary.
Time of Purchase: The insurance rates are not flat throughout the year, but the companies offer different rates at different times of the year.
Your Previous Policy: Your previous insurance policy can also make a difference, and if you have enough time, you can shop around and compare prices.
Insurance Company: The rates may vary significantly from one insurance company to the other based on the company’s reputation, history, and additional services.