In the United Kingdom, buy to let insurance is used to describe a form of building insurance which provides cover for landlords, who have purchased rental property for letting purposes. This type of insurance generally falls into either residential or commercial buildings categories.
The most popular type of policy is for residential buy to let landlords, who have acquired an investment property using a buy to let mortgage. Prior to any buy to let mortgage being approved, the lender will require that suitable building insurance is procured by the landlord, prior to any monies being released. When a landlord shops around for cheap buy to let insurance quote, they should check whether or not the policy wording satisfies the Council of Mortgage Lenders handbook. This document specifies a broad range of perils that a building must be insured against to protect the lenders interest. Lenders will insist on receiving a copy of the policy document, prior to releasing any monies upon completion.
The cost of a typical building insurance premium, is primarily dictated by the buildings construction, age, as well as the postcode. However with residential buy to let insurance policy, one of the additional main factors is type of tenant. Most insurance companies prefer tenants to be working professionals, as opposed to DSS tenants. Many housing associations will find DSS tenants accommodation in the private landlord sector. Many landlords are happy to facilitate such arrangements, due to the relative stability of receiving rental income from the Council Authority. However buy to let insurance companies tend not to offer such competitive landlord insurance rates for this scenario, as the landlord has no control over who is occupying his building, unless the tenancy agreement remains between the landlord and the tenant.
If you are a first-time landlord, shopping around for suitable buy to let insurance policy, you will find a range of additional optional extras exist. These are designed to provide additional levels of protection, should unforeseen circumstances occur. Some of these circumstances have grave financial outcomes.
Firstly many insurers will offer landlords emergency assistance cover. This product is designed for the many amateur landlords who have chosen to avoid the costs of using a letting agent for day to day management, (and instead manage the rental themselves). Landlords emergency assistance option can be useful to cover domestic emergencies in the rental property (such as bust pipe, broken boiler or a blocked rain). It takes the stress, time and hassle out of finding and paying emergency repairmen, during unexpected or unsociable hours. The landlord simply phones their insurance companies' helpline, describes the nature of the emergency, an insurance company will organise a repair person to go out to the rental property to fix the problem.
Secondly many landlords choose to take out legal expenses insurance cover, as an additional cover on top of their main building insurance policy. This is a relatively cheap way to eliminate the financial impact of the risk occurring as legal costs would be covered. The use of legal process should be a last resort but if that worst case did arise, this insurance covers the potentially large cost of using a solicitor. This type of policy is becoming more popular because the United Kingdom is becoming more litigious. It is becoming easier for a tenant to sue a landlord. Likewise the policy can also be used to assist in the possible eviction proceedings of a tenant, should they fail comply with the the terms of their tenancy agreement. Another common fear (and genuine risk) is malicious damage from tenants. The financial impact of actually solving the problem of non-paying tenants or squatters, is the cost of employing legal professionals. So legal expenses is an optional insurance but very worthwhile. Most policies with have different wordings, so its worth checking each one to understand what is included or excluded.
Lastly many landlords choose to adopt rent guarantee insurance in order pay their rent, in case the tenant doesn't pay the rent. There is usually a policy excess before any payments will be made to the landlord. The premium is normally calculated on the actual rent received. Beware that there are usually caveats and limiting conditions attached to these generic policies. This is for the conservative investor. Typically if you use a letting agent, part of their service package might include guaranteeing three months rental income in the event of them not being able to find paying tenants. In practice, an agent should normally be able to find new tenants very quickly (within 3 months) anyway. Make sure this insurance is paid for, and set up before the tenants enter the property, otherwise it may not become valid in the event of an insurance claim.