Landlords naturally look for ways to save money on every tenancy. After all, this is business and you’re in it to make a positive return on your investment? A word of caution, however, cutting corners to save money on your landlords’ insurance could prove to be a false economy.
Landlords insurance may be slightly more expensive than that for owner-occupiers. The reason for this is that the risk of loss is greater; which means that it is something that you cannot afford to be without. Not only will it be a condition of any mortgage you may have that adequate insurance is maintained, but it is vital to your own interests.
These are the 5 biggest mistakes a landlord could make when considering ways to reduce their expenses:
1 – Not Having Landlords Insurance
Perhaps the most obvious way of reducing your outgoings however, this is a tremendous risk. Quite simply, if anything should go wrong with the property, i.e. fire, theft, damage etc – you will be paying for it out of your own pocket.
2 – Reducing the Buildings Sum Insured
Reducing the sum insured might look appealing. After all, most claims are not for total destruction, so if a building might cost £100,000 to rebuild completely, but is only ‘likely’ to be 50% damaged, why not insure it for £50,000? This will not work because insurance companies insist that you insure for full replacement value or they will slash your claim in proportion to the ‘under-insurance’. This is not unreasonable, because when the premium rate reflects the likelihood of a total – compared with a partial – loss in any event. If they knew people would insure for half the value, the premium rate would double, so that the right amount of money was collected to cover all likely claims.
3 – Reducing the Risk Cover
You could consider reducing from all risks to fire and specified perils insurance, but the saving would be modest and the potential for disputed and non-insured claims would rise considerably.
4 – Reducing the ‘Loss of Rent’ Period
Similarly, you might consider altering the basis of ‘loss of rent’ cover, or the period during which the cover operates. However, this too can be a false economy, because reducing from 24 or 36 months protection to just 12 months could leave you without an income for some time, should rebuilding take longer than expected. In the event of a major conflagration, this is highly possible as time is eaten up by planning and other considerations.
5 – Assuming Homeowners Insurance will do
Above all, seeking to save money by ensuring rented property as if it was owner-occupied would be a total disaster, because your insurance would be totally invalidated. No claims of any sort would be paid, even if the fact that the property is rented out is not relevant to the events.
If you need to control your costs, talk to your insurance adviser; there are ways of making life easier.
Nothing contained in the article should be considered as giving individual financial advice. Please note that there may be variations for those living in Scotland and Northern Ireland.
LettingaProperty.com t/a PropMedia Ltd is an introducer appointed representative of Alan Boswell Insurance Brokers Ltd which is authorised and regulated by the Financial Conduct Authority.