Novice property tycoons are being caught out when they rent out their homes because they fail to read the small print on their landlord insurance policy, property experts are warning.

Misunderstandings over buildings and contents cover means that landlords can find themselves paying over the odds for a policy or, worse still, ending up with their properties woefully underinsured.

Many traditional household insurance policies veto commercial letting while others may agree to limited letting, such as renting out the spare room to a lodger, but they will typically apply restrictions on cover.

John Socha is chairman of the Small Landlords Association, a group for private landlords. He also lets flats in Northampton, says: 'Landlords must match their insurance to the kind of tenants they expect to have,' he says. 'Some policies do not allow you to rent to students, or tenants who are claiming housing benefit, because insurers see them as higher risks.

'If the insurance conditions are too strict it can cause big problems. I have had cases where tenants with highly paid jobs have suddenly been made redundant and have found themselves on benefit. If I had been insured on a restrictive policy, the cover on the properties could have been rendered invalid.'

The Small Landlords Association has launched an insurance scheme for members through London based broker Hamilton Fraser.

Eddie Hooker, who runs the scheme at Hamilton Fraser, says: 'We have been negotiating commercial insurance rates that can be as low as half the price of ordinary residential cover.'
Norwich insurance broker the Alan Boswell Group is another specialist. It runs more than 60 insurance schemes for landlord groups.

Director Robert Graver, also a landlord who lets six properties in Norwich, says: 'We have been in this market for six years and have seen it grow fast because private letting has become a popular investment. A common problem can be insuring buildings that are sub-divided into multiple units such as bedsits. Nearly every conventional insurer steers clear of these.'

One of the most popular features of landlord insurance is loss-of-rent cover which compensates landlords for a property that cannot be let after an insured loss, such as a fire or a flood. Graver says: 'Loss of rent is usually limited to 20% of a building's insured value per year. So the maximum annual claim on a £50,000 property would be £10,000.'

‘But there may be problems claiming loss of rent, especially if a home is unoccupied at the time damage occurs. And loss of rent will not cover tenants who simply refuse to pay or disappear. ‘

Landlords wanting to protect against this will need to take out additional legal expenses and financial guarantee cover. The legal expenses insurance will pay-out to pursue a tenant for unpaid rent through the courts. The financial guarantee cover protects if the legal process is unsuccessful.

The Small Landlords Association can be contacted on 0870 241 0471. Specialist insurance schemes for landlords include Letsure 01628 581500; the Alan Boswell Group 01603 218000 and Hamilton Fraser 020 8440 8338.

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