Do You Need Insurance for A Buy-To-Let Mortgage?

Yes, buy-to-let mortgages typically require that the property is covered by a suitable buy-to-let insurance policy, comprised of buildings insurance and property owners’ liability insurance.  These coverages will protect the property in the event of a fire, flood, explosion, theft, or other covered events of a similar nature (e.g., unexpected perils). And the liability coverage protects against covered claims made if someone is injured on the property or sustains damage to their own property.

The property owner is responsible for arranging and paying for the insurance, not the bank providing the mortgage. This article will cover some frequently asked questions about insurance requirements for buy-to-let mortgages so you can ensure you have the right cover.

Do banks give buy-to-let mortgages without insurance?

No, most banks will not give a buy-to-let mortgage without the property owner securing buy-to-let insurance. According to NimbleFins, buy-to-let landlord insurance policies should include buildings insurance and property owners’ liability insurance at a bare minimum. The building insurance aspect of cover protects against loss or damaged due to a covered event like a fire, flood or explosion. Property owners’ liability protects against third parties’ claims if they incur an injury or property damage linked to the property. For instance, if a visitor trips on a loose piece of carpet and falls, sustaining an injury, they could take legal action against the landlord.

In addition, a policy might also include contents insurance to covers furniture and furnishings. While you might not think a property let on an unfurnished basis needs contents insurance, keep in mind that contents insurance is still useful to protect items in an unfurnished property like curtains, carpets and some laminate floorings.

It makes sense that banks require insurance for buy-to-let mortgages to protect the asset. Just as a homeowner would buy buildings insurance to cover the rebuild cost in the event of a fire, a bank would also want the same.

Consider a situation where a mortgaged property burned down and was not insured. If the property owner was unable to pay for the rebuild cost, they might end up in a situation where they ultimately hand the keys back to the bank, losing any equity they have in the house, of course. So the property owner loses out – but so does the bank. The bank would be stuck paying for the property’s rebuild cost in that case, which they wouldn’t want to do. To avoid this disaster scenario for both property owner and mortgage provider, buy-to-let mortgages typically require that the property be insured.

Note: Regular homeowners’ insurance or buildings insurance is not usually sufficient as it probably doesn’t cover renting the property out. Special buy-to-let insurance or landlord insurance is what’s required for a property that is let out.

Do buy-to-let mortgages come with insurance from the bank?

No, buy-to-let mortgages do not typically come with insurance from the bank. Some banks sell buildings insurance or landlord insurance, so you may be able to source your insurance through the bank that has provided your mortgage. But in most cases, landlords will look for insurance in the open market. By doing so, the landlord can find the best price to cover their property.

Purchasing from the open market also allows a landlord more chances to customize their coverage with all of the add-on features they might want, such as:

  • Home emergency cover. To assist with emergencies like loss of heating or hot water, leaks, blocked drains, electrical failure, etc.
  • Rent guarantee insurance. Covers lost rental income if a tenant doesn’t pay their rent.
  • Loss of rental income insurance. If a property cannot generate rental income because it’s uninhabitable due to fire, flood, etc.
  • Legal expenses. To help collect unpaid debts or deal with evicting non-paying tenants, for example), etc.

Do landlords need life insurance for a buy-to-let mortgage?

No, you do not need life insurance for a buy-to-let mortgage. However, it might be a good idea. For example, if you’d like your surviving family to continue to receive rental income from the property if you pass away, then buying a life insurance policy can be a good idea if you have a buy-to-let mortgage.

Why? Well, if the mortgage is in your name and you pass away, the mortgage debt and property become part of your estate. Depending on the value of your estate, there might be inheritance taxes to pay as a result. Could your family pay these taxes without selling the property?

To generate funds to make the tax payments, your surviving family may need to sell the property. On the other hand, life insurance policies can be structured so that they can be used to pay off the buy-to-let mortgage and/or the inheritance tax bill so the survivors can continue to receive the rental income from the property. If you’re thinking of going this route, be sure to speak with a professional who can advise you on the best way to do this.

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