Buy-to-let building insurance is designed to protect people renting a property they own out to tenants. It works in a similar way to a home building insurance policy, paying out for the costs of damage or repair to the property resulting from damage incurred from an insured incident.
For example, if a fire or a flood damages your property, a buy-to-let building insurance policy can cover the cost of repairing the damage, or even foot the bill for the rebuilding of the property if it’s completely destroyed or is beyond repair.
Additionally, as the cover is designed for buy-to-let investors, most buy-to-let building insurance policies can support landlords with the problems they may incur with their tenants as a result of the damage, this generally includes advice for landlords on how to best support their tenants following an incident and cover for compensation. Buy-to-let properties are majority mortgaged, rather than bought outright. Insuring your buy-to-let property is usually a requirement to get a mortgage for this type of investment, in which case you must take out/agree to take out a policy in order to secure finance.
Coverage
Buy-to-let building insurance is one of three principal types of landlord insurance, together with contents insurance and liability insurance. Sometimes, buy-to-let building insurance comes as a standalone policy, but often insurance providers offer this type of cover as part of a package deal in an all-encompassing landlord insurance policy.
Broadly, buy-to-let building insurance covers the following:
- Any damage or repairs to the structure of the property, including inbuilt features such as fitted kitchens, appliances or built-in wardrobes
- The rebuild cost of the entire property if the property is damaged beyond repair.
Different providers define the structure of the property differently and, as a result, differ in what parts have cover under their building policy. Many policies will insure:
- walls, fences and gates
- TV aerials and satellite dishes
- external lighting
- CCTV
- drains, sewers and septic tanks
- garages and other domestic outbuildings.
Buy-to-let buildings insurance only covers damage caused by insured events. Again, these events will differ from policy to policy, but they tend to be:
- Fire
- Explosion
- Earthquakes
- Water or oil leaks from pipes or heating systems
- Subsidence or landslip
- Theft or attempted theft (this tends to exclude theft by tenants)
- Malicious damage and vandalism (again, this tends to exclude damage by tenants)
- Storms
- Floods.
Common Exclusions
As with any insurance product, there are some things that insurance companies will not insure. The specific buy-to-let buildings cover available varies from provider to provider, but there are some typical exclusions to bear in mind. These are:
- The Average Clause. Most insurers include a ‘Condition of Average’ in their policy wording, relating to the rebuild value of your property. This clause means that if you were to underinsure your property by half, you would only be able to access half the amount of the claim.
- Storm damage to gates, fences and hedges. It’s a good idea to carry out regular maintenance on these features to prevent any significant repair costs, as storm damage relating to these tends to be an exclusion from a buy-to-let buildings policy.
- Unoccupied property. Not all insurers will provide cover if the building is left empty for an extended period. Most providers will cover your property if it is vacant for up to 30 days, but typically, no longer. You may have to take out an additional policy if you envisage your property standing unoccupied for some time.
As with any policy, it’s crucial to check the small print so that you understand exactly what elements of cover you have so that you can consider taking out additional protection.
Assessing the Need and Scope of Coverage
While it’s not a legal requirement, as mentioned having landlord building insurance in place is a condition for many buy-to-let mortgage providers. Whether you’re required to have it or not, you must consider whether you could afford to repair or rebuild your property if it suffered severe damage from a fire, flood or other event.
It is often not only the cost of repairs that needs to be considered but you may also have to rehouse your tenants while the property is uninhabitable. These costs can quickly stack up to reach hundreds of thousands, or even millions (depending on the size/value of your property portfolio), which could result in bankruptcy for many buy-to-let investors.
Having buy-to-let building insurance in place can financially protect you against some repair work you might face as a landlord. From small things such as replacing a damaged door to extensive repair work such as replacing a leaking roof, however it won’t typically cover landlord boiler repair (there are many associated costs when you have a duty of care to your tenants). This type of building insurance can offer peace of mind and financial security to landlords renting out property.
How Much Cover Do You Need?
When you’re looking to take out a landlord building policy, one thing you must ensure is that you accurately insure the rebuild value of your property. This value represents how much it would cost to completely rebuild the property from scratch if it burnt to the ground or had to be demolished entirely for any number of reasons.
It’s essential to get this right, as this figure is likely much more than the price you paid for it or its current market value. What’s more, providing the wrong figure could leave you underinsured leaving you to pay the difference, or could even invalidate your policy.
Fortunately, The Association of British Insurers (ABI) offers guidance on working out the rebuild value of your property, providing an online calculator to help you account for all the necessary costs.
Will My Standard Home Insurance Cover My Rental Property?
Many home insurance policies do not cover properties that you own if you do not live there. This is because different issues affect a property when it’s not the policyholder who lives there, such as:
- you don’t get to see the property as often, to report problems in their early stages or judge the general state of the property
- tenants may not pay the same level of attention to maintenance issues which can let them get out of hand
- tenants may cause damage to the property, either accidentally or maliciously
- if a tenant gets hurt in your property, it may be the property owner that is found liable.
A standard home insurance policy isn’t designed to cover these eventualities. Landlords, therefore, require a specific policy to help them deal with the practical elements of owning a home as well as the complications of renting to others.
Calculating Cost
There’s no one-size-fits-all price when it comes to building insurance. How much you pay will vary hugely depending on the property’s size, age and its location. Certain geographic areas will trigger higher prices if they present higher risks, such as being close to a river that’s prone to overflowing.
If the property is particularly old, it may be more expensive to insure, or if the building type is unique in some way, such as having a thatched roof or having other structural peculiarities.
How Can You Lower Your Premium?
There are a few ways to bring down the price of your insurance without compromising on your level of cover. If your policy includes theft and vandalism, tightening up your security could help lower your costs.
If you kit out your property with a burglar alarm system and state-of-the-art security locks, your insurer may offer you a reduced premium. Similarly, if your property is in good state of repair, your insurer may consider your likelihood of claiming reduced, which may also reduce your premiums.
Another option is to increase your excess. The higher the excess fee you choose to pay, the less you’ll pay in monthly premiums. Be careful to only opt for an excess that you can afford. Similarly, if you own more than one property, you may be able to save money by taking out a multi-property policy that covers all your buy-to-lets.
Finally, if you opt for an all-inclusive package, you can generally save money rather than paying for each type of policy separately. Many insurers offer comprehensive landlord insurance packages, which can cover buildings, contents and other features together.
Final Thoughts and FAQs
Buying and letting property can be a fantastic investment vehicle, allowing you to generate a regular and predictable return in the form of a monthly rental income.
However, unexpected damage and resulting repairs can be expensive and runs a significant risk to your overall return. Repairs for something as simple as a burst pipe can quickly run into the tens of thousands, taking into account damage to furniture, damp or plumbing replacement.
Fortunately buy-to-let insurance is there to safeguard property investors against the building risks associated with owning a buy to let property. Still have questions? Take a look at common buy-to-let insurance queries below.
- What if I Rent More Than One Property? – Most providers will allow you to put more than one property on the same policy, which can be a cost-effective way to insure your portfolio. If the properties are very different or you require different levels of cover for each, you can choose to protect each property individually with a specific policies for each.
- What if My Property is a Flat in a Block? – If you own a flat within a block of flats, your building insurance tends to be part of a shared block policy. This should already be in place, and you’ll pay for your share as part of your service charge. It’s essential to check the specifics of what the existing policy covers so that you can consider taking out an additional policy for your property if you need more comprehensive cover.
- Can I Get Buildings Insurance for the Garage at My Rental Property? – Most buy-to-let buildings insurance policies cover outbuildings and garages as standard, so in most cases, you wouldn’t need a separate policy for your garage. That said, if you rent the garage or an annexe separately, you may need to find cover on a separate policy.
Other Types of Landlord Insurance
For buy-to-let mortgage providers, one of the primary conditions is to have buildings insurance in place. This is to ensure that the investment is protected and thus the finance provider from unforeseen circumstances. However, aside from general landlord insurance policies, property owners may want to consider other types of insurance for their buy-to-let, such as:
- Contents insurance: This type of policy covers any furnishings provided by you in the property. While a buildings insurance policy could pay for a replacement kitchen in the event of a fire, any individual items such as sofas, TVs, tables, and chairs would not be covered. This type of policy only includes the items owned by you – your tenants are responsible for insuring their belongings.
- Rental protection insurance: If your property suffers severe damage, it may be uninhabitable for a time while the repair work takes place. During this time, your tenants will need to be rehoused, and won’t be paying rent. This means you will lose your monthly rental income, which may cause you to default on mortgage payments. Rental protection insurance can pay out and cover the lost rent in the period following an insured event.
- Property owners’ liability insurance: Sometimes known as public liability insurance, this covers you against claims made against you by your tenants or members of the public for injury or illness at your property. Liability claims tend to be very expensive, so many policies offer a minimum of £2 million for any one claim.
- Employers’ liability insurance: If you have any employees working at your rental property, whether that’s a gardener or a cleaner, or even a volunteer, you are legally responsible for their safety, and employers’ liability insurance is a legal requirement.
- Unoccupied property cover: If your buy-to-let stands empty for any extended length of time, which insurers tend to consider as more than 30 days, your standard insurance policy may not cover you. This is because an unoccupied property poses a higher risk of vandalism, theft and malicious damage.
