Business Insurance

Why Does Tenant Type Affect The Cost Of Landlord Insurance?

Choosing what type of tenant you want in your rental property is a big decision, and one that can affect the cost of landlord insurance significantly. Understanding why this is the case can help you decide who is right for you.

In the world of landlord insurance, the aim of the game is to ensure you are protected in case the unexpected happens — for example, your tenant's boiler suddenly breaks down in the middle of winter! (in this case, landlord home emergency insurance cover is a sensible choice).

In addition to being adequately protected, taking steps to minimize the risks themselves is also key, and insurance providers take many factors into account when calculating your quotes for landlord insurance. The more risky the picture you've painted, the higher your insurance premium will be.

One factor that can heavily influence the cost of landlord insurance is the type of tenant renting your property. Some tenant types are perceived to be more or less risky than others, and regulating the type of tenants you do business with can be a simple way to save money overall.

So why is this the case? Let's take a look at the most common types of tenant in the UK and why they are deemed to be more or less risky by insurers.

Employed/self-employed

Tend to be the most 'coveted', owing to the fact they have a regular and reliable source of income and are more likely to make their monthly rental payments in full and on time. Also, it is assumed that working professionals are more likely to treat their home with respect and care, and report any issues in a timely manner.

Retired

Similarly to working professionals, individuals who are retired likely have a stable source of monthly income in the form of pensions, but are also more likely to be able to fall back on savings if needed. Due to the fact the retired population tend to be older, there is far less risk associated with accidental or malicious damage, and they are more likely to notice when things start to go wrong and report them quickly.

Unemployed/DSS

There is inevitably a higher risk of being unable to make rental payments when you are unemployed, with no reliable source of income and uncertainty over when you will be back in employment again. There are also more complexities when dealing with DSS tenants, or those claiming state benefits. Again, there is less certainty of regular payments and both the amount and frequency can change suddenly resulting in a stressful situation for both you and your tenant(s).

Also, in the case of DSS tenants who are renting privately, you will find that more often than not their benefits will not cover 100% of their monthly rental payments, meaning they are often required to make up the shortfall. Due to the fact they usually don’t have any other regular sources of income it's more likely they will find themselves unable to cover these, leaving you out of pocket.

Students

We were all young once, and unfortunately students have gained a slightly bad reputation amongst landlords and landlord insurance providers. Due to the 'party culture' associated with university life there is a higher risk of accidental damage in student rental properties.

Friction can naturally arise between tenants and landlords for these reasons (and many others), and there is a possibly that student tenants might damage the property maliciously (i.e. intentionally), although it's important to remember this can and does happen with all types of tenant, and not just students!

You may also find that students are less likely to both notice and reports issues with the property in a timely manner — any issues or damage can be made worse if gone unnoticed and can be much more costly when it comes to making a claim.

Asylum Seekers

Although far less common, you might find yourself in a position where you are asked to offer accommodation to asylum seekers whilst the processes of reviewing their case and finding more permanent accommodation is ongoing. Whilst payments are covered by the government, there is a lot of uncertainty over their length of stay in the property, and you will find they will usually move on once their claim for asylum has been reviewed and either accepted or rejected.

This has the potential to be very costly for landlords, for example changing details of tenants on an insurance policy can incur administration fees. Naturally, insurance providers view these situations as being much more risky due to the uncertainty over who will be in your property and how long for.

With asylum seekers typically spending far less time in a rental property before being asked to move on, there may be an increased risk that issues will go unnoticed or simply brushed over, which can be more costly to you as the landlord and lead to a higher chance of a claim to the insurance company.

There are plenty of resources out there regarding the process of allocating accommodation to those seeking asylum in the UK, and you can check out this informative guide here.

How does the cost of landlord insurance differ by tenant type?

As we have just discussed, insurance providers deem some types of tenant to be more risky than others. So how does this affect the cost of landlord insurance? We've compiled quoted based on a no-frills buildings insurance policy for a 1 bedroom flat in a mid-sized town in the UK, with a rebuild value of £200,000 and landlord liability of £2 million.

Landlord Insurance Cost Calculations By Tenant TypeAnnual Premium
Employed/self-employed£193
Retired£200
Students£322
Unemployed/DSS£403
Asylum Seekers£526

From our sample quotes you can see there is a considerable difference in the price of landlord insurance depending on the type of tenant renting out the property. Thinking about the level of risk associated with each group, we naturally find that landlord insurance is cheaper for landlords with employed, self-employed and retired tenants and much more expensive for those with unemployed, DSS and Asylum Seeker tenants!

Remember though, these quotes are intended to be used as a guide, and any quotes you receive may be higher or lower than those above depending on your own circumstances.

Final thoughts

Regardless of tenant type, there are inherent risks involved with renting property out to strangers. This is why taking out landlord insurance is essential to ensuring you are protected, potentially saving you a lot of money if the worst were to happen. As we discussed earlier, some of the bigger risks associated with tenants tend to centre around missed or late rental payments, accidental damage and malicious damage.

There are plenty of landlord insurance providers out there that offer additional levels of cover to protect you against these risks. Some may include these as standard within their main buildings or contents policy, whilst others may offer these to purchase as an add-on. We would recommend considering some of the below types of landlord insurance, especially if you find yourself renting to 'more risky tenants'!

  • Accidental damage: covers cost of replacement or repair to your rental property or contents you supply to your tenants if these are lost or damaged accidentally
  • Loss of rental income: if your property becomes inhabitable, for example due to flood or severe building damage, this protects you from the income lost during the period of time it takes to restore your property
  • Landlord rent guarantee: unlike loss of rental income, landlord rent guarantee insurance will cover you if a tenant is unable to make rental payments regardless of whether your property is habitable or not (e.g. if the tenant has recently lost their job).
  • Malicious damage and theft by tenants: if a tenant purposely loses or damages your property or any contents you provide within it, this will help cover the costs of replacing or repairing this damage
  • Landlord legal expenses (£100,000 limit): covers the cost of unexpected legal fees associated with general property disputes (e.g. end of tenancy disputes), eviction proceedings, rent recovery and repair and renovations disputes cover e.g. if you enter a dispute with a contracting party over a repair of your property
  • Landlord home emergency cover: in the event of an emergency (e.g. a boiler breakdown) this will cover the call-out costs, labour and parts required to resolve the issue. This covers emergency breakdown of heating, plumbing and utilities as well as things like infestation and you usually gain access to a 24/7 emergency helpline for when you need it most.

Another simple way to identify potential risks early on is to perform adequate referencing checks, especially if you are thinking about letting your property to 'non-standard' types of tenant (e.g. students, DSS). If you choose to go ahead we would recommend opting for specialist insurance providers such as CIA and Towergate, who offer tenant specific types of landlord insurance to ensure your cover is tailored to your needs.

Emily Bunt

Emily is a psychology graduate from the University of Kent, currently working as a Data Analyst at NimbleFins focused on insurance content for SMEs. Prior to this she worked in market research at Kantar, investigating consumer behaviour and decision making, as well as in a supporting role in the field of mental health. Learn more at LinkedIn.

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