DID Cameron Diaz and Kate Winslet think about insurance when they swapped homes in the film The Holiday? It's unlikely, but it is a thought that should concern anyone following suit this Christmas. The same principle applies to another more common scenario: a couple move in together, and decide to let their other property. But people often forget to make sure that their property is adequately insured, paying premiums on a policy that is effectively useless.

“Many landlords make the mistake of thinking that they are covered by their buildings insurance for letting the property to tenants,” says James Harrison, the chief executive of Insurancewide.com, the insurance comparison website. “The reality is that a standard home insurance policy will exclude cover for any property from which revenue is earned; even for renting out one room you must have a specific landlord's insurance policy.”

Landlord or buy-to-let insurance policies remain a relatively niche sector of the home insurance market: do not make the mistake of simply taking the cover on offer from your mortgage lender. Shopping around is essential to get the best terms. And remember that as with mortgage interest payments, insurance costs can be offset against tax when you fill in your self-assessment form.

CONTENTS COVER

Contents are not generally covered by landlords policies, and if you are letting your property unfurnished, there is no need to get a full contents policy; you would need to cover only the basics, such as curtains, carpets and any electrical appliances you have supplied. However, in the case of a furnished property you would need a full contents cover, as a standard insurance policy is insufficient.

“With normal household contents cover, invited guests are not covered,” says Richard Mason, the managing director of insurance at Insuresupermarket.com, an insurance comparison site. “That means that if you allow someone into your home and they steal everything, you would not be covered.”

He points out that this applies to home swaps, too: “You can get a specialist policy if you decide to swap homes over Christmas, or you could contact your existing insurer to extend cover to your guest for the period of the swap.”

Mason says that it is a common mistake among amateur landlords - particularly those renting out a home in which they used to live - to continue to pay premiums on their standard policy in the mistaken belief that it is sufficient. “But as soon as you have been out of your home for 30 days, your insurance policy becomes void.” If you have a particularly lavishly decorated property which you let out, insuring the contents may become prohibitively expensive.

“In cases where you have expensive items in a let property, you are better off taking a very large security deposit rather than trying to cover the cost through insurance,” he says.

BUILDINGS COVER

Buildings insurance quotes vary dramatically: research from Landlord Mortgages shows that shopping around can more than halve the cost. For a landlord policy on a twobedroom, mid-terrace house in Reading with a rebuild cost of £46,000, Landlord Mortgages found that the premiums on offer ranged from £115 to £275.

As with standard buildings cover, premiums will depend on a range of factors, including postcode and the type of property. “Watch out for the small print,” Harrison advises. “Most policies will not cover malicious damage by tenants or allow you to take on tenants with an antisocial behaviour order (Asbo) without paying a much higher excess in the event of a claim.”

Most landlords policies will include cover for owner's liability, but there will be conditions attached. Insurers will insist that you have smoke detectors installed and that all appliances, as well as the electricity and gas, are regularly checked.

OPTIONAL EXTRAS

It may be tempting, particularly in an uncertain economic climate, to seek the reassurance of rent guarantee cover, which will pay out in the event that your tenant fails to pay the rent. However, Richard Mason says that it is rarely economical to do so.

“Rent guarantee cover is very expensive, because the insurer is taking all the risk of a default without having any say in who the tenant is. The cost goes through the roof,” he explains. He points out that some policies will cover a portion of the rent -usually about 10 per cent - at no extra cost. But even this is of limited use. “If you start to claim on this, you will find that when you wish to renew your policy the premiums will be much higher. I would not advise people to do so.”

www.insurancewide.com

www.insuresupermarket.com Landlord Mortgages: www.lml.co.uk

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