how to insure your investment property

Landlords and investors need to be aware that an existing, standard buildings or contents insurance policy may not cover the property or its contents when it is let – and especially when the property is empty during a void.

Firstly, if you're planning to let out your own home you must advise and obtain consent from your mortgage lender and existing insurer. Failure to do so may render your landlord insurance void in the event of a claim.

When choosing tenants it might be worth considering that some general insurers will not grant cover for certain categories of tenants, i.e. students, multiple single sharers and tenants in receipt of state benefits.

Buildings insurance

Almost 40% of UK properties are under insured. It is essential that the sum insured represents the full re-building cost of your property, not its market value.

Insured events:

• Fire
• Lightning
• Explosion
• Smoke
• Impact
• Burst pipes or leakage of oil
• Storm or flood
• Malicious damage – check that you are covered for malicious damage by tenants
• Subsidence
• Theft

Most policies will compensate you for loss of rent if the property is uninhabitable following damage from one of the above events – check the level of compensation you might expect.

If your investment property is part of a block of flats, you’ll need to find out who is responsible for insuring the structure of your building. In some instances the owner of the block will already have buildings insurance to cover this, meaning you’ll only need to take out contents insurance for your flat.

Contents insurance

Most specialist insurers offer either a full contents policy or a limited contents policy. As a general rule, if your property is let fully furnished and the contents would cost more than £5,000 to replace, then you should opt for Full Contents Cover.

Items likely to be covered:

• Furniture
• Television and entertainment equipment
• Curtains and carpets
• Clothes

If the property is part or unfurnished, then a limited contents policy, with a limit of around £5,000, would cover such items as carpets, curtains, light fittings and white goods on a new for old basis.

These policies will also provide the landlord with Employer's Liability and Landlord's Liability. Examples of injuries to tenants or their guests caused by defective cookers, loose carpets etc. can result in substantial claims – personal injury claims have increased 85% since 1990 - so it is recommended that landlords have at least the basic contents and liability cover.

Tenants should be made aware that any items taken into the property are their responsibility to insure.

Emergency Assistance

If you live some distance from the property, and have not taken a full management contract from your letting agent, then this type of cover will provide assistance in the event of plumbing problems, leaking roofs, failure of electricity supply, lost keys etc.

These policies cover emergencies - they are not a repair service resulting from a lack of routine maintenance.

Security

For properties both in the UK and overseas, insurers demand fairly stringent security arrangements, including burglar alarms and mortice locks. However, when insuring overseas, they may go further and demand that you fit window and door shutters.

Insuring your overseas property

The most important difference between insuring a UK property and an overseas property is that the latter is likely to be uninhabited for longer periods. If you are using it as a holiday home, or letting it out during holiday periods, you must be certain that your landlord insurance policy covers the periods in between.

Make sure that you read the small print: some policies insist that if the property is to be unoccupied for more than 30 consecutive days, the gas, electricity and water must be turned off at the mains and water and heating systems drained. Failure to do so could result in claims not being met.

Security

As in the UK, many insurers demand fairly stringent security arrangements, including burglar alarms and mortice locks. However, when insuring overseas, they may go further and demand that you fit window and door shutters.

Accidental damage

Accidental damage to contents is more common when insuring rental properties – tenants and holidaymakers might not take as much care as owners, and items such as CD players, TVs, spin dryers etc can be damaged by misuse. Check your policy covers any breakages.

If in any doubt about taking out insurance for overseas property, it is a good idea to do your research and, if necessary, choose a specialist insurer to guarantee the most appropriate level of cover.