Small buy-to-let investors at risk of ‘inadequate’ insurance

Small buy-to-let investors at risk of ‘inadequate’ insurance
Simon Dawson/Bloomberg

Buy-to-let investors with a small handful of properties are “inadequate[ly]” insured or not insured at all, according to advisers.

While the majority of professional portfolio landlords will have adequate insurance in place, those with three or less buy-to-let properties are unlikely to have the appropriate cover, advisers have said.

Liability insurance can cover landlords for things like tenant damages, or even loss of rent.

Some advisers have gone as far as to suggest landlords should also be considering individual protection policies, especially if they are heavily reliant on the rental income their portfolios yield.

London-based broker at IntraPrivate Finance, Bulent Kandemir, said tenants and landlords are not adequately covered because they are not aware they need to be.

“This space is held firm by estate agents regarding initial letting, however the tenants and landlords are not informed sufficiently regarding having insurances in place after the initial let,” said Kandemir.

“Most professional portfolio landlords will have adequate insurance in place. However, those with less than a portfolio (one to three buy-to-let properties) will either not have any insurance or inadequate policies.”

Due to the high level of claims, Kandemir also noted that most buy-to-let building and content insurance policies tend to be more expensive than residential insurance policies.

“If it is a flat, having a management company usually means the building insurance is provided by them, which is usually sufficient insurance for the building,” said Kandemir.

FTAdviser has, however, highlighted instances where even with building insurance in place via a management company, it can be hard for individual flat owners to access it or action claims under it.

According to specialist insurer Hamilton Fraser, around 85 per cent of buy-to-let landlords have opted for insurance of some kind, leaving about 15 per cent uninsured.

The average annual cost of landlord insurance in England is £170 per property, while the average annual rental income is £11,228 per property, meaning the cost of insurance sits at around 1.5 per cent of a buy-to-let investor’s income. 

‘We don’t get involved’

Some advisers have withdrawn from advising on landlord insurance. Lincolnshire-based broker Bob Riach said his firm, Riach Financial, has stopped advising on it, in part due to its network

“We don’t get involved with insurance,” he said. “With the network we’re with, you have to be approved and then tested on it to show you’re authorised to deal with that type of insurance.”

Now the firm has two more mortgage advisers onboard, it is looking to re-register to advise on property insurance.

“The only thing lenders insist on is building insurance. We just tell clients to do research but make them aware they have to do building insurance,” said Riach.