How to protect yourself from the tenants from hell

Do I really need landlord insurance?

Although building insurance is compulsory whenever you take out a mortgage, it does not offer sufficient cover for those wishing to rent out their property. This is because the risks facing any potential landlord are very different to those facing your average homeowner.

For example, if your property is damaged by a flood or fire, you could potentially lose out on rental income, have to pay damage repair costs and find yourself on the wrong end of a lawsuit.

Whereas standard home insurance would only cover you for the damage to the flat and your possessions, Buy-to-Let or Landlord building insurance could also provide cover for the rent that you would lose out on while the flat is being repaired — plus cover your legal expenses against the lawsuit issued by your tenant.

Protect against tenant damage

Whenever a landlord rents out their property they are hoping that their tenants will look after it. Despite background checks and references, incidents of damage to rental properties do still take place.

Landlord Insurance is a useful tool to guard against such issues as it offers specific cover to protect your property, including legal cover to evict unauthorised tenants and repair accidental damage.

How much cover?

If you are thinking about taking out landlord insurance, then it is very important that you consider the issue of Building Sum Insured (or BSI as it is known).

Landlord building insurance is based up the cost of rebuilding your property should it be completely destroyed. Get it wrong and you could end up paying far too much for your insurance.

When calculating the BSI of your property it is important to include things like the clearance of the site, surveyor fees as well as the actual cost of the rebuild.

There are a number of tools online that can help you calculate your rebuild cost, but it should also be stated on your mortgage statement. Of course if you're in any doubt the best thing to do is to get a professional survey done to ensure your BSI is as accurate as possible — this will, however, come at a cost.

If you take out Landlord contents insurance you'll need to work out how much it would cost to replace all of your possessions in the property and get cover accordingly.

How are the premiums calculated?

As with any form of insurance, an insurer will assess the risk of your property and set your premiums according to the likelihood of you making a claim.

Factors that will influence your premiums include:

• The location of the property

• The Buildings Sum Insured (a low rebuild value means lower premiums)

• The type of tenants in the property (it's cheaper to insure 1 professional tenant than 7 students)

• Whether you have a history of claims

• The age of the property you are insuring

• The type of property (flat, detached, terraced etc)

What kinds of properties can be covered?

The types of property that can be covered by Landlord insurance are: houses, bungalows, flats in a purpose-built block, flats/bedsits in converted houses where you wish to insure the entire property and Holiday homes in the UK. It is also possible to insure multiple properties with just a single policy.

What types of cover are available?

The basic kinds of cover typically offered by Landlord Insurance policies are as follows:

Landlord building insurance

Typically covers your building's structure against things like fire, lightning, explosion, storm, earthquake, flood, subsidence, property owners liability, riot, escape of water, falling trees, theft, malicious damage, ground heave and land slip. Cover will start at around £75,000 to a maximum of £2 million.

Landlord contents insurance

Of course whether you need this depends on whether you are renting your property as furnished, part-furnished or unfurnished. Contents cover will also include carpets, curtains, fixtures and fittings — basically anything that can be damaged by fire, flood or theft — and is typically up to a maximum of £50,000. Remember to check that your policy ensures that your contents are replaced old for new. You can also get limited contents cover for just fixtures and fittings.

Liability insurance

As a Landlord you are responsible for the health and safety of your tenants. Liability cover will protect you against lawsuits for accidents, injuries or even fatalities at your property. The typical maximum for standard liability is £2 million.

Alternative accommodation insurance

Again this relates to your property becoming uninhabitable. If this were to happen then, as the name suggests, alternative accommodation insurance would cover the cost of your tenants living elsewhere while your property is being repaired.

There are also some optional extras available which may also be worth considering:

Loss of rent insurance

This can provide cover in the event that your property becomes uninhabitable and as such you're unable to rent it out. Usually you would get 20% of building's sum insured for 12 months but this will vary depending on the policy.

Accidental damage insurance

This covers you against accidental damage to your property caused by your tenants — some policies include this as standard, others include it as an add-on.

Emergency assistance cover

This usually covers the cost of calling out a contractor in the event of an emergency such as the breakdown of a boiler (although it doesn't cover problems that are a result of lack of maintenance). Many providers will offer a 24 hour/365 days a year call out service to their clients. This may be an option worth investigating if you don't live near your property or don't use a property management company.

Rent guarantee cover

This will cover you if your tenant is unable to pay their rent. Some also include £10,000 of legal cover and policies are available for either 6 or 12 months to suit your particular tenancy agreement. For some landlords this is a particularly attractive piece of cover as having a tenant default on rent payments could affect your ability to repay your mortgage.

Legal cover

This covers any legal costs arising from tenant disputes such as not paying rent, refusing to leave property or unauthorised inhabitants.

Any exclusions?

You may find that who your tenants are will have a significant effect on your premiums and some policies will exclude certain types of tenants all together, such as students. Cover for those judged to be riskier tenants is available, but tends to attract a higher premium.

Additionally, whenever you decide to rent out your property you should always ensure that you inform your mortgage lender, insurer or leasee (if you are a leaseholder), otherwise it could lead to any future claim being refused.

How to pick the perfect landlord insurance policy

As with any type of insurance, the key to getting the right amount of cover at the right price is to shop around.

Decide the level of cover that you require by looking at things like the type of tenant you will be renting your property out to, the amount of contents cover you need (if any at all) or whether you require extras like legal cover.

Once you're confident about the type of protection you need, you'll be able to compare landlord insurance policies to find one that suits. Remember to base your decision on the quality of cover as well as just the cost — this is the only way to make sure that you're not going to be left footing the bill if things go wrong.

You will find that some policies will offer deals such as including free accidental damage cover or discounts on multiple properties. These are always worth looking at, but only worth taking out if they do genuinely provide value for money.

Finally, if you can afford to do so, it is always best to pay for your policy outright in one go. That way you will avoid the sting on monthly interest charges.