Buy to let buildings insurance
Whether you have invested in residential or commercial property, the business case anticipates a stream of income from the rents you charge tenants and leaseholders. That is the principle of buying to let.
Any property you own needs the protection of buildings insurance. Buy to let buildings insurance is a particular form of property cover which recognises that the primary business objective is the generation of rental income.
That underlying purpose of your owning the property distinguishes buy to let buildings insurance from other, standard types of cover which you might arrange to safeguard either your own home or commercial premises from which you are running your own business. Unless you have the appropriate type of buy to let insurance, therefore, any claim you subsequently make for loss or damage may be rejected.
If your property is mortgaged, also note that it may typically be a requirement of your mortgage lender that you have appropriate buildings insurance – this protects both your financial interests.
So, what does let property buildings insurance typically cover?
Buy to let buildings insurance may include a number of elements:
At the heart of the cover is protection for the structure and fabric of the building – against potentially major risks such as fire, escape of water, flooding, explosions, impacts (from vehicles or falling objects such as trees or aircraft), vandalism and theft.
This is an essential part of the cover since it provides you with the financial wherewithal to clear the site and rebuild the premises in the event of a major disaster leading to its complete destruction.
The total building sum insured, therefore, needs to reflect current rebuilding costs – which are not the same as the price you may have paid for the property or its present market value. The Royal Institution of Chartered Surveyors (RICS) Building Cost Information Service (BCIS) provides up to date guidance on current rebuilding costs for both residential and commercial property.
Buildings insurance may vary widely and be subject to different inclusions and exclusions, depending on the particular product bought. The risk of subsidence, for example, may be excluded – especially if there is a history of the problem in the area – and similar exclusions may also apply to flooding. Some buy to let buildings insurance policies may also provide cover against malicious damage caused by your tenants.
Loss of rental income
Safeguarding your ability to maintain rental income from your buy to let property is also fundamental to your business objectives.
It is income likely to be in jeopardy, however, if a major insured event – such as a fire – renders it uninhabitable or unusable by your tenants.
Buy to let buildings insurance may, therefore, provide a defence against this disruption of your business objectives by way of compensation for loss of rental income. The compensation available is usually limited both in terms of the period for which it is payable and the maximum sums involved (often determined as a percentage of the total buildings sum insured, for example).
Landlords’ liability insurance
Your buildings insurance may also incorporate landlords’ liability indemnity.
If a tenant, one of their visitors or customers, a neighbour or a member of the public is injured or has their property damaged, you may be held liable as the owner of the building. Such claims may assume substantial proportions, and it is usual for landlords’ liability cover to provide at least £1 million indemnity – £5 million or even more, in the case of larger commercial premises.