Insurance To Think About

When buying a buy to let property there are many things you need to think about. Landlords insurance, buildings and contents cover and even key man insurance.

You actually take ownership of the property at exchange and are therefore are responsible for that property from the exchange date even if completion is a week or more away. For this reason you need to make sure you have all insurance in place and ready to go at this time. It has been known for house's to burn down in this period between exchange and completion leaving the new owner with a huge bill to pay before he gets the keys. But there are other insurance policies investors should take into account when buying a property to rent out.

Landlord Insurance

As a Landlord you are effectively buying a property which is going to give you a source of income. And this is what you are looking to insure. If you are taking an income from a property then any residential insurance you arrange will not be valid and will not pay out on a claim. This is true even if your mortgage is a residential mortgage. Normal household insurance will not pay out if you are making an income from the property. Most landlords will only take out buildings insurance to cover the actual property and not worry about any contents as this is down to the tenant who has the keys. You will often find with leasehold property that the free holder is responsible for arranging the buildings insurance. This is often due to the fact that there is a converted house made into two flats. You will often find freeholders charge a high amount of insurance and it is always worth checking this before you purchase. As well as the usual buildings and contents cover landlords insurance will often have a bolt on extra which covers the income should the following happen:

Your property is badly damaged by a fire. Luckily your tenants are ok but its takes a while to redecorate the properties. For example it could take 4 months to repair the damage. The insurance would pay out for the work carried out as well as a percentage of the income lost from the tenants.

If the tenants stop paying the rent and refuse to leave the property and give back the keys you will have to pay to take them to court and recoup the rent. Landlords insurance may well help with the costs if you have taken out legal cover as well.

Key Man Insurance

With all the investment clubs and funds around some people are clubbing together and buying properties in a group or as a company. If this is the case it may be an idea to take out some kind of key person insurance in order to cover each director in the event of death or critical illness. key person insurance will also cover the company if they loose a partner or shareholder. In any normal circumstances shares will pass to the wife/husband. By taking out key man insurance the company can benefit from a lump sum payout which can then be used to buy out the shares from the wife or husband. This way the remaining directors can keep control of the business without too much of a financial burden. Some business loans will also stipulate that you must take out key man insurance.