Run for cover: Buy-to-let home insurance

Will your buy-to-let home insurance weather a tempest, asks Chris Partridge

The stormy weather this month has been a stark reminder to many buy-to-let investors of the importance of having proper house insurance cover. Jane Milne, head of property insurance at the Association of British Insurers, says that after such widespread damage: "The cost will be several hundred million pounds, and it is likely that many landlords have suffered."

Homeowners have become blasé about storms because they occur so rarely. The last really destructive storms were back in 1990. "We have forgotten that it can be like this, but we do expect that with climate change, storms will get more frequent and more violent," adds Milne.

Landlords who hold properties for the long term are at risk of becoming under-insured as time goes by. "All of us need to review our insurance, especially if you have owned the property for some time, as costs may have changed," she says. The most common insurance mistake is false economy, skimping on coverage and suffering as a consequence.

But as Andrew Thompson, of the Building Cost Information Service (BCIS), points out, paying too little is not the only mistake. Many buy-to-let landlords, he says, are paying too much. "Homeowners need to insure their homes at the rebuild value, not the market value," he says. Even if a house is destroyed, the plot of land is retained, so the cost of rebuild is lower than the home's market value.

Insuring for the cost of rebuilding rather than the cost of buying another property can bring substantial savings in premiums. "Knowing the rebuild value means you may be offered better insurance rates because the insurer can assess its risk exposure better," Thompson says. "These latest storms should prompt people to check their buildings insurance policy and get it right when it's time to renew again."

But how does the average landlord estimate the rebuilding cost without bringing in expensive professional advice? Simple: the BCIS, which is part of the Royal Institution of Chartered Surveyors, has a free online rebuilding cost calculator at calculator.bcis. co.uk. To use the calculator, you need to know the outside dimensions of the house, and roughly when it was built. The calculator will give a figure for the common types of house from terraced cottage to executive detached home.

The calculator does have limitations, covering only standard, brick-built houses of average size. Stone palaces, blocks of flats and listed buildings must be professionally assessed.

Thompson has personal reasons for recommending the calculator. "My fence blew down in the storm, and it made me think that things could have been much worse if something serious had happened to my home and I didn't have the right insurance cover," he says.

Many buy-to-let landlords with larger portfolios will not be claiming for storm damage because of high excess levels, says Chris Town, chairman of the Residential Landlords Association.

"One of the issues is that large excess levels mean that minor damage has to be covered by the landlord," he says. "My own portfolio carries an excess of £5,000, so I will only claim for major damage. I regard lost tiles as a maintenance issue."

The storm also highlights the necessity of getting specialist insurance for tenanted property, and not relying on ordinary domestic house insurance. "A house-owner must inform their insurer and their mortgage lender if the house is let out," says Malcolm Harrison of the Association of Residential Letting Agents.

The financial consequences when things go wrong in a house are far worse when a tenant is involved, Harrison points out.

"Supposing a tenant slips on the steps - they can sue the landlord. If there is a major leak you might have to put the tenant up in a hotel while repairs are made - does the policy cover that?" he says.

If disaster strikes and the house is wrecked, the tenant will have to be rehoused and the income will be lost as well, so buying a specialist landlord's policy that covers these eventualities is essential, Harrison advises.

Storm shelter

* Buy a landlord's policy - do not rely on ordinary domestic building insurance

* Ensure cover includes rehousing tenants

* Estimate cost of rebuilding at calculator.bcis.co.uk

* Review cover regularly