Renting out a property has proven to be one of the most profitable investments in the last decade. The risks associated with poorly behaved or unconcerned tenants make rental properties an investment that is fraught with risk and this is complicated by the lack of risk cover available on the market. Landlords insurance that does the job and protects investors from the risks posed by property investment and is essential to maintain profitability.
Even with a damages deposit, when a tenant vacates a property the landlord may still be left with a large bill to put the property back into letting condition for any future tenant. A security deposit may be as much as two or three months rent, but this may not cover the cost of a new bathroom or a new kitchen that has to be replaced or even a basic redecoration and replacement carpets beyond normal wear and tear.
Many tenants carry no insurance of their own, safe in the knowledge that the landlord must by law cover risks associated with maintaining the property in habitable condition. If a property defect causes any injury to a tenant, for instance tripping over loose carpet on the stairs, then it makes sense to a tenant to sue the landlord for damages and there are numerous judgements in favour of tenants just for this sort of situation.
Insurance for landlords has developed in leaps and bounds over the last decade as the buy to let market has matured. Settlements and awards in favour of tenants have become financially viable for lawyers to pursue because there is an investment property that can be attacked to release payments for damages. Insuring the property is not just about protecting it from fire and theft but unscrupulous claims that can be very costly to defend.
The real value of an insurance policy is not the cost of the premium but the ability and record of the company to settle any claims. Investors need to remember that every week that passes by with a claim unsettled is another week of lost income while the associated mortgage costs still have got to be met. You need to pay very close attention to the claims record of your insurer and how well they handle claims, including whether you need to pay out the costs of works from your own funds before you are reimbursed when considering who to use as your insurer.
You need to look very carefully at the various factors that apply to a landlords insurance policy. Make sure that the cover that is offered by a policy provider is adequate to meet your needs and any possible claims by your tenants. The premium may be fantastic, but you really need to get to grips with how well they are going to handle any claim that may arise in the future or risk losing your hard earned investment waiting for paper pushers to make a decision.
The most obvious aspect of insuring your investment property is the condition and risk factors that affect the physical property itself. Too often, not enough consideration is paid to the incoming tenants who are trusted with your investment on a daily basis and may not have your hard earned property investment too high on their own list of priorities.
Closely scrutinise any policy documentation and take pains to compare like with like when choosing your insurer and policy. Do not settle for second best when it comes to insuring your buy-to-let property and remember, you are not just insuring bricks and mortar but your own financial security.
By Andrew Fisher