Before we discuss buy to let landlord insurance, let’s define the term “buy to let.” Basically, buy-to-let is an investment objective in which an investor purchases residential property (as opposed to already established residential rentals) and turns it into rental property. In the United Kingdom, buy-to-let mortgages have been used by investors, since the late 1990s to buy designated properties for the purpose of “letting out” the property to renters or tenants.
The Association of Residential Letting Agents ( ARLA) first used the term buy-to-let in the mid 1990s to market a financial plan aimed at the real property, investment market, specifically the real estate rental market. The association’s objective was to highlight new types of loans aimed at prospective real estate investors that specialize in converting residential properties into rentals. It’s not that these types of loans were new (these loans had been around for several years); buy-to-let lending was a marketing ploy.
Now let’s discuss landlord insurance. It has existed for many years. An informed landlord or owner of rental property may subscribe to this insurance, which protects his/her property against nefarious tenant disputes. (The tenant can also purchase renters insurance, which protects the renter from nefarious landlords.)
Some of the ways in which landlord insurance protects the landlord include mitigating legal disputes and recompensing the landlord for any legal fees. If damage to property occurs, landlord insurance will help pay the cost of repair to the damaged areas and will reimburse the landlord for any lost rent as a result.
The landlord has several options from which to choose in deciding the type of landlord insurance plan best fits his or her needs. Since the insurance plan is a contract, all landlord and insurance company responsibilities must be explicitly stated, clearly and concisely. The plan must state the type of coverage that best fits the landlord’s needs.
Basically, a landlord has two types of insurance coverage from which to get compensated from property loss: replacement and cash values. Replacement value premiums usually cost more since the damaged parts of the property are replaced without including the depreciation on the property. Cash value premiums usually cost less since the landlord receives a cash payment for the property loss minus the depreciation on the property.
Another type of low cost landlord insurance is a premium with a deductible, that is, the landlord pays some of the property damages out of his own pocket. In general, the higher the deductible, the lower the premium the landlord has to pay.
Buy to let landlord insurance is different than landlord insurance (and normal home insurance). Buy to let insurance is aimed at a specialized market in which an investor purchases a residential property and converts it into a rental property. This type of insurance is sometimes called a “specialist landlord policy” and should be considered for the buy-to-let landlord.
One of the key differences between buy-to-let landlord insurance and regular home insurance is the unoccupied property rule. For home insurance, the property may not be unoccupied for more than 30 days. For buy-to-let landlord insurance, the property may not be unoccupied for more than 90 days. Unoccupied property rules may vary, so it’s prudent for the landlord to investigate the limitation rules in his or her policy