What Type of Insurance Do I Need for Rental Property?

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Property owners need a special kind of insurance called ‘landlord insurance’ for rental properties.

According to insurance experts, NimbleFins, a good landlord insurance package should include buildings insurance, contents insurance, landlord liability insurance, and legal expenses cover at a minimum.

In addition, other coverages can be added, such as rent guarantee (which kicks in if a tenant fails to pay) and loss of rental income cover (which helps cover lost rent if a property is unable to be rented due to damage in a covered event, like a fire). According to NimbleFins, a rent guarantee is more important if the rent is used to cover mortgage payments, and loss of rental income cover is more important if the landlord insurance does not cover alternative accommodation.

Here is a quick overview of what is broadly covered by different types of insurance for a rental property:

Buildings insurance: Covers the cost to repair or rebuild a property if it’s damaged or destroyed in a covered event. It doesn’t cover wear and tear, poor workmanship or general deterioration. Still, it will safeguard against fire, water or oil leak, theft or attempted theft, storm, flood, vandalism, and possible even subsidence.

Contents insurance: Covers the cost to replace or repair goods owned by the landlord, such as free-standing white goods or easily moveable floor coverings such as carpets. Essentially, anything not fixed to the building is considered to be contents. Therefore, even carpets and linoleum can be classed as contents (on the other hand, tiles, wooden floors and most laminates would come under building insurance).

Accidental damage: Covers damage to the contents and/or building (depending on which coverages are chosen) in case of unexpected damage. For example, if a tenant hammers into a water pipe while trying to hang a framed photo.

Legal expenses: Provides access to legal experts and covers costs associated with legal issues such as debt recovery, eviction, investigation, and more.

Rent guarantee insurance: Covers lost rent if a tenant fails to pay their rent. With rent arrears set to treble after the coronavirus pandemic, A rent guarantee could be wise to consider if the landlord cannot forgo the income, for instance, if it’s used to pay a mortgage or for necessary income.

Loss of rental income: Covers lost rental income if a rental property becomes is uninhabitable and cannot be rented out for covered reasons, such as after a fire.

Do I need homeowners insurance for a rental property?

Technically, a ‘homeowners insurance’ policy is not appropriate for a rental property. There is usually a clause in homeowners insurance policies negating cover if the property is rented out.

Instead, a rental property can be covered by a landlord insurance policy. This can offer the same basic types of protection as a homeowners policy (e.g. buildings and contents cover) but is designed for rental properties.

Additional benefits are usually included in landlord insurance policies, such as public liability cover for landlords. This covers if a tenant is injured or has property damaged and blames the landlord. Specialist landlord insurance products also provide coverage specific to rental properties, such as rent guarantee and loss of rental income.

How much does landlord insurance cost?

The typical landlord insurance cost is around £170 for a modest residential rental property. However, the cost depends on many factors so that prices will vary from property to property. One key factor in determining the cost of landlord insurance is the rebuild cost of the rental property. The more it would cost to rebuild if it’s destroyed (e.g. in a fire), the higher the premium will be.

Add-on coverages like accidental damage, rent guarantee and loss of rental income will increase the premium paid as well.

Do you need public liability insurance for a rental property?

A rental property should be covered by a form of public liability insurance called landlord liability cover. Property owners’ liability insurance protects landlords against compensation claims from a tenant, tradesperson or visitor if they were injured or die at the rented home. These third parties may also take legal action against a landlord if their property was damaged at home.

It could be claimed the landlord was negligent, and they could be taken to court. Liability insurance would cover the legal costs, compensation and medical bills of the claimant.

An example of property owners’ liability insurance is if a light fitting fell and damaged a tenant’s laptop, they could sue the landlord for damages. Or if the landlord had left a loose paving slab and a visitor tripped and broke their leg, leaving them unable to work, they could sue the landlord for compensation, including any lost income. The liability insurance would cover the legal defence costs and any damages awarded.

Damage to neighbouring properties as a result of an incident at the landlord’s property can also be covered by liability insurance.

Personal injury claims can result in significant compensation, and without liability insurance, the landlord may have to meet these costs themselves.

Liability insurance is usually one of the standard elements of landlord insurance, with the other being buildings insurance.

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