Just how important is landlord insurance?
Well, for landlords, security and peace of mind is absolutely essential. A buy to let property is an incredibly valuable asset, and not one that you want to put at risk. And although renting to strangers may be part and parcel of the trade, it can be worrying and sometimes things go wrong, with potential problems ranging from disruptive tenants to unexpected disasters like a fire or flood. What’s worse, the nature of these problems means it’s very difficult to predict when they’ll occur and they often require a lot of money to put right. This mean it’s vital that you protect yourself and your investment against the worst case scenarios.
This is where landlord insurance comes in. This specialist cover protects landlords against the specific risks and problems associated with owning a buy-to-let property. It’s not the same as regular home insurance, and shouldn’t be thought of as such. In fact, for landlords, bog-standard home insurance simply won’t cut it. If you want your claims to be accepted, landlord insurance is the only way to go.
What is landlord insurance?
Put most simply, landlord insurance safeguards the owner of a rental property against financial losses linked to that property. This means if the building’s damaged in a storm or the house is broken into, you’ll be able to make a claim and recoup the money.
As most people aren’t landlords, this type of insurance remains quite niche. Unlike more standardised cover like home and car insurance, coverage can vary quite dramatically between policies. Different insurers set out their policies individually and choose which risks they’re willing to insure against. This means policies will offer varying levels of protection, with different features coming as standard. What you’re covered for will often depend on who you’re buying from.
At its most basic, landlord insurance includes buildings insurance, which protects the actual property against damage and destruction from hazards like fire or floods. It is also likely to include contents insurance, which will protect any furniture and possessions that you’ve provided for the property – for instance, in a furnished flat or house.
Beyond this, landlord’s insurance may include additional features like key protection, loss of rent insurance, legal expenses insurance and home emergency cover. These features won’t come as standard with every policy available, but are often available as extras.
On the face of it, home insurance and landlord insurance seem very similar. Both protect the owner of the property against loss and damages, either to the building or to its content. However, as landlords face additional risks, they need more than this basic cover.
Here are some examples of the key differences between a landlord and a regular homeowner:
As a landlord, you won’t be looking after the property on a day to day basis. You’ll also need permission from the tenant, with an agreed date and time if you do want to access the property. This can make routine maintenance more challenging, as you can’t just go in whenever you like to check on the property’s condition.
Unfortunately, not all tenants will be conscientious. This means problems and damage can end up being left unreported. Imagine there’s a leak in the bathroom. What starts out as a tiny leak could turn into catastrophic water damage if it’s ignored. As a home insurance policy generally assumes you’re the one living in the property, it wouldn’t help you in this scenario, and would probably be voided on the grounds of you having tenants.
If your tenants are injured whilst in your property, they have the right to make a claim against you and seek compensation. So for example, if a tenant trips over some loose carpet that you haven’t fixed and breaks their wrist, they could initiate a personal injury lawsuit.
This is because landlords have a responsibility to make sure the building is safe, so if it isn’t the law will see you as liable. A standard home insurance policy is unlikely to include public liability cover, which can protect you in the event that you’re sued. On the other hand, landlord insurance nearly always includes this and so is more suited to the job.
What problems do landlords face?
Damage to the property or its contents is one of the biggest risks for private landlords. This might be serious damage caused by hazards like fire, smoke, storms and lightning, or falling trees.
Equally, damage could be caused by the tenants themselves . Not all tenants leave properties in perfect condition, and you might find that furniture and other fittings have been damaged over the course of a tenancy.
Sometimes this falls into fair ‘wear and tear’, which is where household items deteriorate over time simply due to normal repeat use. In this case, there’s little recourse for landlords as it’s unlikely that you can claim on insurance, or initiate a deposit dispute based on a normal amount of wear and tear. However, all landlords in Ireland are entitled to a capital allowance known as ‘wear and tear allowance’, which is based on the costs of the furnishings and fittings. This is paid over eight years, with the annual rate calculated at 12.5% of the original price of the item.
Whether it’s considered a reasonable amount of wear and tear will be determined based on factors like the length of the tenancy, the expected lifespan of furnishings and fittings, and their current age. On the other hand, some excessive damage will be considered the fault of the tenant, even if it’s accidental.
Fair wear and tear
- Worn or flattened carpet
- Scuffed/lightly scratched floors
- Scuffed walls
- Loose door handles and hinges
- Faded, chipped, or cracked paint.
- Lose wallpaper
- Plaster cracks from settling
- Faded blinds or curtains
- Pet damage – e.g urine stains on carpets, scratch and chew marks
- Ripped furniture
- Deep scratches in flooring
- Ripped, stained or burnt blinds and curtains
- Damage or stains from smoking (in a non-smoking property)
- Holes from nails or drilling (if this is banned in the tenancy agreement)
Non-payment of rent can also mean you accrue additional legal costs if you end up taking your tenant to court.
Thorough referencing (including references from an employer , references from previous landlords and affordability checks) and requiring a guarantor for certain tenants can reduce the risk of non-payment and debt.
Carrying out inspections and maintaining the property can end up being a big drain on resources for a landlord. Certain repairs, for example, have to be dealt with urgently and often at great cost. For instance, the following problems are all examples of emergencies that would need to be addressed immediately by a landlord:
- A faulty boiler leading to a lack of heat or hot water
- Smell of gas
- Structural problems
- Doors or windows that can’t be shut or locked properly
However, smaller maintenance tasks can quickly add up – for example, faulty appliances, clogged drains, cracked flooring or a running toilet. None of these are immediate emergencies, but all will have to be dealt with at some point. In terms of keeping tenants happy, a timely response and repair is always more effective.
Remember that Irish law prohibits private landlords from arriving at the property unannounced or entering without permission from the tenants. Although there isn’t a legal minimum notice period (as in UK law, which requires 24 hours notice before a landlord can enter a tenanted property), you have to agree a date and time in advance. Breaching this requirement by entering without permission can put you at risk of a legal dispute with your tenant. The only exceptions are in the case of an emergency like a fire, flood or gas leak. Immediate access is allowed in such a scenario, but the time for non-emergency repairs always needs to be agreed upfront with the tenant.
Do I need landlord insurance?
Landlord insurance is not technically mandatory and isn’t required by law. However, you’ll probably find that your mortgage provider won’t lend you a cent without it and most will ask you to take out a dedicated policy as a condition of the loan.
Overall, it’s highly recommended that you take out landlord insurance to protect your investment from the risks that are part and parcel of the rental market. Plus, depending on the terms of your house insurance policy, renting to tenants may actually void your cover in the event that you need to make a claim.
Taking on a lodger can be a great way to earn a bit of extra cash if you’ve got a spare room. But what does the law say? Do you need landlord insurance? First, we need to define the difference between a tenant and a lodger.
Under Irish law, a person who is renting a room that’s part of their landlord’s home has very different rights than if they were renting a self-contained unit from the same landlord. Unlike lodgers, tenants are protected under the Residential Tenancies Act. A person is considered a tenant if they’re the only person who has access to the property and the right to enter. This can apply even if the flat is technically part of your own house, as long as you share no common facilities and there are separate access points (e.g, if you’ve got a granny flat attached to your property).In terms of landlord insurance, any self-contained flat or apartment needs adequate cover, as it’s the same legal arrangement as any other tenancy – they’re not a lodger in this scenario.
On the other hand, if it’s just your spare room, the person will be considered a lodger and there will be a ‘licensee’ agreement in place. This means they’re there with the landlord’s permission and are not entitled to the same protection as tenants covered by the Residential Tenancies Act. For example, accommodation doesn’t have to be kept to a minimum physical standard and there’s no obligation to register the tenancy with the Residential Tenancies board.
For lodgers in spare rooms, landlord insurance won’t be necessary, but you will have to let your home insurance provider know that’s what you’re doing. If you don’t disclose a lodger to your home insurer, your cover could be invalidated. There will also often be exclusions in place to account for lodgers – for example, theft won’t normally be covered if it’s found that your lodger is responsible.
You should also be aware that your own contents insurance won’t cover your lodger, and you should inform them that they’ll need to take out their own policy. You might also want to consider adding liability insurance if your home insurance doesn’t have it, in case your lodger injures themselves while in your home and takes legal action.
Buildings insurance covers the physical bricks and mortar of your rental property. This means the property’s roof and walls, as well as its ceilings, floors, doors and windows. Some interior fittings will also be covered, such as fitted kitchens and bathrooms. Additional buildings like garages and sheds often fall under this cover too.
Buildings insurance should cover the rebuild cost of any property. This means if your property is completely destroyed, the maximum payout needs to be high enough to cover the reconstruction costs. It will protect you against a range of risks, which often include:
- Lightning strike
- Frozen or burst pipes
- Falling trees
- Collision from vehicles
Landlord’s contents insurance basically covers everything that’s not nailed down. This means furniture like sofas and beds, fittings such as fridges or ovens, as well as any flooring like carpets and laminate floors. This is a must-have for any landlord, but it’s even more essential if you’re letting out a furnished property. If your furniture and fittings are damaged or destroyed, you won’t have to stomach the cost of refurnishing the entire property.
The insured events will largely be the same as those covered by your buildings insurance – so think fire, lightning strike, earthquakes and so on. However, it will also cover your contents in the event of theft by forcible means – so if your rental property is broken into and things are stolen, they’ll be replaced by your insurer.
Always remember that landlord insurance won’t cover your tenants’ personal possessions. Make sure that they’re aware of this and advise them to take out their own separate contents cover.
Landlords need public liability insurance because they’re legally required to provide a reasonable level of safety for their tenants. If something goes wrong and a third party (e.g a tenant or their visitor) is injured whilst inside the property, you could be liable and could end up getting sued for damages.
Public liability insurance will protect you against this eventuality. You can make a claim to recoup:
- Damages won by the claimant
- Your legal expenses
- The claimant’s legal expenses (if you’re found to be at fault)
If catastrophe strikes and your property is so badly damaged (by a fire, for example) that your tenants are forced to move out, you could potentially lose a huge amount of money in lost rent. This could very easily put you in dire financial straits, especially if you’re unable to meet your own financial obligations as a result.
This is where loss of rent cover comes in. It will protect your rental income and pay out a certain amount whilst the property is unoccupied. The amount will vary and may be paid out in monthly instalments, or as a lump sum (depending on your insurer). However, you won’t be paid more than the gross rent that should have been received.
Beware though – this doesn’t cover you if your tenants stop paying their rent. That falls under ‘tenant default insurance’, which isn’t offered as a standard feature with most policies.