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Buy to let investment

Rental and legal insurance

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Most rental insurance policies are there to cover you against loss of rent caused by tenants defaulting on their payments. Although the collection of a deposit, taking of references and credit checks will go some way to ensuring that your tenants are good ones who will be reliable, treat your property correctly and pay the rent on time, there is never any guarantee.

Rental insurance cover will enable you to recover the loss of income caused by tenants defaulting, paying the rent until they either leave, or a predetermined period expires. Claims cannot usually be made against rental insurance until the tenant enters their second month of overdue rent.

But defaulting tenants are not the only thing that rental insurance can cover you for. Below is an outline of the other areas that rental insurance policies can give you cover for. As with most insurance products, the level and scope of cover varies tremendously. You should not assume that all rental insurance policies will include all of the areas of cover mentioned below - always check the individual policy details.

Legal cover
This provides you with financial protection against the cost of having to take tenants to court. If you have a legal problem arising from you tenant not paying the rent or from unauthorised occupation or damage to your property, this insurance will cover all legal fees, costs and disbursements incurred by a solicitor. This will normally be a solicitor appointed by the insurer. Court proceedings can easily cost over £1000, even in a fairly straightforward case, so this sort of cover can be well worth having.

In addition the insurance will defend your legal rights if an event from you letting your property leads you to being prosecuted in a criminal court.

Uninhabitable property
Some rental insurance policies provide cover that will continue to pay your rent should the property become uninhabitable for a period of time. For instance, your property may have been flooded, meaning that your tenants have to move out whilst the property is repaired. This aspect of the cover will also usually provide hotel accommodation for the tenant up to a certain value for a predetermined period of time.

Void periods
Although it is pretty expensive, you can sometimes get cover to insure you against void months when the property is unlet.

Points to remember

  • As with most insurance policies, there is normally an excess, which claims must be above in order for the policy to pay out.
  • There is also normally an overall limit of indemnity. This may be different for the separate aspects of the cover.
  • The cover will only continue for the duration of the current term of the tenancy.
  • The insurance must be taken out at the start of a tenancy. Some insurers may request to be involved in reference checks.
  • Read the small print and never sign anything you don't understand.
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