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

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.

Tenants and landlords are not informed sufficiently regarding having insurances in place after the initial let.Bulent Kandemir, IntraPrivate Finance

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.

We don’t get involved with insurance.Bob Riach, Riach Financial

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Some advisers have withdrawn from advising on landlord insurance.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.

There are few investments where a third party (in this case, a tenant) can damage your return so directly, so it makes sense.Graham Taylor, Hudson Rose

Meanwhile, other firms include landlord insurance as standard in buy-to-let investment conversations.

Nailsworth and Cirencester-based broker at Hudson Rose, Graham Taylor, said his firm will always advise landlords to take out appropriate insurance to protect their investment. 

“There are few investments where a third party (in this case, a tenant) can damage your return so directly, so it makes sense to protect yourself,” Taylor told FTAdviser.

“The alternative might be to self-insure if landlords are fortunate enough to have built cash reserves, but most landlords will view the insurance as a necessary business expense and factor this into their calculations.”

‘Landlords need to consider protection’

Insurance providers such as LV are beginning to help renters amend their level of cover for income protection so they are better able to deal with changes in rental payments, but little is being done to target individual landlords.

London-based broker at L&C Mortgages, David Hollingworth, said his firm tries to promote landlords to consider protection.

It can be hard to get landlords to think about it.David Hollingworth, L&C Mortgages

“On the protection side, we do look to engage with buy-to-let customers and it makes sense to think about protection from the point of view of the individual and their overall situation, rather than be driven from the type of mortgage we are arranging,” Hollingworth explained.

“It can be hard to get landlords to think about it, but important to try as they may have other mortgages, family and a reliance on the income generated so looking at the rounded picture makes sense.”

The brokerage also provides an option for landlords on the general insurance side, giving buy-to-let clients access to more specialist advice.

Hollingworth added that life insurance can be a “difficult thing to crack” as people can be resistant and in the context of buy-to-let landlords are even less inclined because they don not see it as part of the personal profile they need to protect.

ruby.hinchliffe@ft.com