Calculating Block of Flats Insurance Needs

Calculating proper block of flats insurance is complicated. It is tempting to go with the lowest amount of cover as possible, but this will lead to a potential disaster for any landlord. The value of the rebuild of a property can cause irreplaceable losses.

The following valuation areas need to be considered:

  • The cost of current reconstructing prices in the area.
  • The cost of clearing and preparing for construction.
  • Fees and expenses associated with the process.

All of this should be a major factor in a block of flats insurance policy – specifically buildings insurance.

From this basic information, there are other items that will factor into choosing the proper cover amount. These factors include:

  • Inflation costs that can arise due to rebuild times.
  • Alternative accommodation cover that is needed to provide accommodation for tenants.
  • Claims of liability, and claims from adjoining building owners.
  • Long-term rental and contract losses.
  • Staff compensation.

These points need to be factored into the proper cover amount. Rebuilding can take years for a bigger property, and inflation can rise 1 to 3 times in some cases. If a policy is older and new cover amounts are not routinely considered, there may not be enough cover to rebuild.

Liability claims and claims from adjoining building owners or the public will lead to a massive lawsuit in most cases. Legal expenses at this time can swell, causing many landlords to have to sell their property to pay off claims. Insurance may provide cover for legal expenses, which would help to lower these burdens.

Arriving at the proper valuation of a property will require the help of a Chartered Surveyor. This will give the best possible estimate on a building’s real valuation.

Determining the size of the building and the quality of the construction will be needed. The judgment of the valuation will also need to consider adjoining building costs, which can increase a property’s value.

Valuations should be updated yearly. A full re-inspection is recommended every 3 years in most cases. There are also times when a landlord will over-insure a block of flats, causing unnecessary expenditures to arise. Knowing the right cover amount to seek may mean saving more money on premiums, or it can mean paying higher premium amounts because the building’s value is higher.

Exclusions and the scope of liability should always be understood for any potential policy. Exclusions may cause a sense of false hope in that a policy provides enough cover, yet doesn’t truly offer the cover when it is needed most.

Knowing your responsibility of what to cover and the appropriate level of cover that is needed is a necessity. It is recommended that, as a landlord, you make a strict policy that needs to be followed to assess your cover needs. That is, a policy that will be used any time a new insurance policy is needed, or an update on the cover amount is recommended.

Professional advice from a surveyor or assessor is recommended. This will help you avoid potential holes in insurance that may end up costing you money – or major losses.

Operational Costs Harm Landlord Profits

Landlords in the United Kingdom are facing a period of lower profits. While rent costs are high, operational costs are harming landlord profitability, states a new survey. According to statistics, 1 out of 8 landlords do not calculate the true cost of running their rental property.

Ultimately, this leads to inaccurate end of the year returns.

Data shows that 84% of landlords receive less income due to unexpected costs. This included repairs, landlord insurance costs, and other expenses, such as:

  • Maintenance
  • Marketing fees
  • Letting agent fees
  • Interest

All of these costs will lower the potential income that a landlord will earn. According to statistics, the average landlord operating expenses are £8,500 per year. The landlords that are most affected by these numbers are the small landlords that do not have a large portfolio or the resources needed to ensure expenses are kept to a minimum.

In total, unexpected costs per year for landlords in the UK is £1,500 per year. These are costs that can often be eliminated with the proper insurance, or costs that can’t be alleviated because they are a part of ownership.

The average cost of ownership for a rental property is 52% of the income generated by the property. Calculating the actual return on investment (ROI) of the property must be done properly. This means:

  • Gross profits added
  • Capital gains added
  • Operational costs deducted

Everything from refurbishment to repairs and maintenance should be considered an operational cost and be deducted from the total earnings for the year. Void periods are also a major concern, with many landlords facing up to 3 months with no rental income coming in.

A few ways to save on operational costs are:

  • Tenant Referencing: A comprehensive referencing should be done. This will include screening all potential tenants to ensure that they are employed, have adequate rental history, and have adequate credit.
  • Liability Insurance: Tenant liability insurance protects the tenant and the landlord. This will protect the tenant’s deposit while being utilized when accidental damages are seen on the property.
  • Landlord Insurance: Many landlord insurance policies have add-ons. This may include void periods wherein the landlord will receive some of the income they normally would when letting out a property.

Insurance costs should always be rolled into the rental cost of the property. This will allow landlords to immediately recoup some of the money that is needed to properly insure a property.

Landlords should seek specialist products and services designed to save landlords time and money. These products and services will include landlord insurance policies that are lower priced, yet supply more than enough cover for a landlord to be properly protected.

If you own several properties, you’ll find that policies can often be combined into one larger policy that provides more than enough cover at a more affordable rate.

As operational costs continue to rise, it’s important for landlords to find ways to cut back on costs and boost profits at the end of the year. One way is combining insurance policies and adding insurance costs into your rental costs.

How Will the New Subletting Clause Affect Landlord Insurance?

In the small print of the 2015 Budget under the “support for the sharing economy” heading is a clause that will allow tenants the freedom to sub-let. In a nutshell, what this new clause does is prohibit private landlords from ruling out short-term sub-letting in their tenancy agreements. This clause appears to be beneficial to tenants, but how will it affect landlord insurance? Some experts are calling it a “recipe for disaster”.

Unanswered Questions

Landlords still have plenty of questions about how this clause will not only affect their landlord insurance policy, but their tenancy agreements. What happens if the tenant who is sub-letting the property leaves, but the sub-letting tenant stays? How can landlords check the immigration status of tenants if they no longer have complete control over who is living on their properties?

How the Clause May Affect Landlord Insurance

How will this new clause affect landlord insurance policies? That depends. Sub-letting introduces a number of different problems. Often, the rating structures for these policies are primarily based on the type of tenant living on the property, and how many are present. Insurers also place a higher risk on the student tenants. Some may not even offer cover for students.

Landlords will have a difficult time answering the risk question accurately and disclose details about their tenants if they no longer have control over who is occupying the property.

With tenants having the ability to sub-let without restrictions, it may make it difficult for insurance companies to offer adequate cover. In some cases, the landlord may find it difficult to find appropriate cover, or it may be out of their budget range if a tenant is sub-letting to a high risk tenant.

Detrimental to the Rental Industry

Many experts are saying that the clause could be catastrophic for the rental industry. With subletting scams on the rise in the private sector, things will likely get worse if the clause remains intact. In one particular scam, tenants let a property, but have no intention to actually live on the property. Instead, they transform common living spaces into extra bedrooms, and sub-let those “rooms” out to other tenants. Each tenant signs a separate agreement, and when all is said and done, the “middle man” is making more money than the landlord.

By the time landlords become aware of the situation, damage from overcrowding has already been done. And because these were tenants sub-letting, repairs may not be covered under a landlord insurance policy. Ultimately, the damage caused can cost thousands. The tenants who hold the legitimate tenancy agreement are long gone by the time the landlord figures it out.

If the clause remains in effect, underwriters may just decide to charge a higher rate to every landlord in order to factor in the risks associated with sub-letting.

With landlords having to pay higher premiums on landlord insurance, many will simply opt not to purchase the cover and take a great risk in doing so. The government may rethink this move after facing so much backlash. From a landlord’s perspective, the clause seems to only benefit tenants who are looking to scam landlords.

Your Guide to Properly Insuring Your Flat

Are you letting a flat or apartment? Letting a property requires you to obtain adequate insurance. Typically, a landlord will have block of flats insurance if they own multiple properties that need proper cover.

A few of the most common questions asked by an insurance provider are:

Is Buildings Cover Needed?

As a landlord, you may or may not be responsible for buildings cover. The responsibility falls on the owner of the freehold. However, many freeholders will add in a premium that is part of the service charge.

Anyone that owns the freehold will be responsible for arranging buildings cover.

If a group of people own the freehold, a block policy is a wise choice. This policy will cover the entirety of freeholders and allows for greater cost control. Owning a freehold also means you have the right to shop around for insurance.

Do I Need to Insure Possessions?

Personal possessions are not covered against loss unless household contents cover is provided. As a landlord, this is your responsibility and not that of the freeholder as seen with buildings cover.

Anyone that is in a flat share can also take out insurance on just their own possessions. This allows you to avoid costs for other flat mate property.

A communal policy is not recommended. While these policies may be more cost effective, they are also contingent on all parties paying their insurance. If one flat mate doesn’t pay the insurance, this may mean that your items still remain uncovered. After all, the entire policy is due, and partial payments are often not allowed.

Possible Mishaps

There’s a lot that goes into insuring a flat. Oftentimes, it’s a neighbour or someone else that causes damage to your property that may or may not be covered under your policy. In this case, you must have the right insurance in place to cover all of your possessions.

For example, an old tenant may still have the keys to the flat. This person may enter the property at any time and steal your belongings.

Many insurance policies will not cover these losses. Why? Insurance providers often require some proof of forced entry. Since the past tenant didn’t need to break a door or a window, there is no way to determine if a burglary occurred, or if you were at fault for the items disappearing.

Flat mates are also a risk and may steal items.

A long discussion with your insurer is the best thing you can do to ensure proper cover is provided at all times. Knowing when this cover is needed most will allow you to ask the insurer all the right questions before signing a policy.

Taking out a large excess on claims is another valid way to keep premiums low.

Inadequate cover limits are also a concern. If an upstairs flat caused a leak in the roof and damaged your furniture, these items may not be allowed to be claimed if cover is not high enough. The right limits should be discussed with an insurance agent.

Does Landlord Insurance Cover Flood Damage?

Floods are not uncommon in the UK, and as a landlord, it’s important to ensure that your property is covered against such a disaster. Floods can be devastating to your tenants, but how will such an even effect you as a landlord? Will your landlord insurance policy cover the damages?

Does Landlord Insurance Cover Flood Damage?

That depends on the policy. Not all companies that offer landlord insurance will offer flood insurance. If they do, it typically comes at an added expense. If you own a property in a high flood risk area, flood insurance is a necessity – even if you have to pay extra for it.

Flood Damage: Determining Responsibility

Who is responsible for flood damage: you, or the tenant? Landlords are required to keep their properties reasonably safe and in a reasonable state of repair, according to the Landlord and Tenant Act of 1985. Under this act, you are responsible for any repairs caused by flood damage.

Any damage that affects the habitability of the property requires immediate attention from you, the landlord. If water is soaking into the carpets or any damage has been done to the property, you need to begin marking repairs as soon as possible. Water damage, in particular, needs to be addressed immediately as it can lead to mold growth.

In addition to any water or physical damage to the building, you will also be responsible for repairing or replacing any furnishings that you provided with the property. Electrical and gas supplies will also need to be checked and may need repairs.

Relocating Tenants

If a flood occurs, do your tenants have to move out? That depends on how severe the damage is.

If minor flooding has occurred, your tenants may be allowed to remain on the property. However, it’s important to keep in mind that you will be responsible for the safety of the tenants if they stay on the property.

If moderate flooding has occurred and repairs will take a few weeks, you are not obligated to find alternative accommodation for your tenants. If your landlord insurance policy offers this cover, you may make a claim and provide your tenants with temporary rehousing. In this case, the tenants will still be responsible for paying rent each month.

When serious flooding occurs and repairs will take several months, drastic measures may need to be taken. Refer to your tenancy agreement to determine what to do in this sort of situation. Depending on the agreement, the tenancy may be terminated if the property becomes uninhabitable. The tenant will still be responsible for finding alternative accommodations whether the tenancy is terminated or not. In most cases, it’s in everyone’s interest to terminate the tenancy.

Flooding can cause a tremendous amount of damage. If your standard landlord insurance policy does not cover flooding and your property is in a high risk area, it’s worth it to pay the extra cost for the supplemental policy. This vital cover will ensure that your property is protected against any damages caused by flooding.

How to Save On Your Landlord Insurance Policy

Landlord insurance may not be a requirement by law, but it’s still a necessity. Without it, you may wind up having to pay for repairs, damages and liability claims out of your own pocket. Some landlords shy away from buying insurance because they feel that it’s an unnecessary cost. However, with the right policy in place, it is possible to get the cover you need at a price you can afford. Here are some tips on how to save on your landlord insurance policy:

Decide if You Need Contents Insurance

What type of property are you letting? Is the property furnished or unfurnished? If you’re letting an unfurnished property, there is little cause to purchase contents insurance. Tenants can purchase their own insurance to cover their own belongings.

If you plan on letting a furnished property, contents insurance is a smart option. It will cover any items in the home that belong to you, the landlord. This includes any furniture, fixtures, electronics and any other items that you provide for your tenants.

Compare to Find the Best Deal

Saving money on your insurance is one of your top priorities. Because this is such a competitive market, you can easily shop around to find the best deal. There are a few different ways to do this:

  • Use comparison websites: Comparison websites are a great option for anyone who is short on time. These sites will ask you to enter simple details about your property, and will match you with insurance companies that offer the best deals.
  • Check with the bank or the local building society: If you have a good working relationship with your bank or the local building society, you may be able to find a good deal on your insurance policy.

Understand What Affects the Cost of Your Landlord Insurance

When trying to build the right policy for your needs and budget, it helps to have an understanding of what factors affect the cost of your insurance policy.

Some of these factors include:

  • The location and size of your property
  • How much your property is worth
  • Whether or not your property has any environmental risks (like flooding)
  • Any previous claims you may have made
  • The local crime rate
  • How many tenants will be occupying the property
  • Whether or not you have alarm systems installed (smoke and theft)

These are just a few of the main factors that will affect your policy’s premium. Some of these factors are in your control, while many of them are not. Making adjustments to the factors that are in your control may help you reduce your insurance premium.

Understand How Much Cover You Need

When valuating your property, it’s important to ensure that your estimates are accurate. Over- valuing can cause you to pay higher premiums. Under-valuing may save you money, but if you ever need to rebuild, you may find yourself short on funds to complete the job. Ideally, you will choose a policy that offers unlimited cover. Many insurance companies are now offering this as part of their standard landlord insurance policy.

In addition to buildings cover, you need to consider whether or not you really need all of the supplemental covers offered by most insurance companies. Trimming these down can lead to significant savings.