Buy-to-let investors could suffer substantial losses by opting for standard household insurance rather than policies designed specifically for landlords, warned Paragon Mortgages.

Most standard household policies are designed for owner-occupiers and can present some serious shortfalls for landlords and buy-to-let investors. One of these concerns is unoccupied property. Ordinary household policies typically exclude burst pipes and theft cover if the property is unoccupied for more than 30 days. Longer periods of unoccupancy are comparatively rare in the case of homeowners, but for landlords that are carrying out refurbishment work or who may experience a void period, this time limit is far too restrictive.

Another shortfall could be malicious damage to the property as standard household polices exclude this whereas a specialist landlord policy should cover malicious damage by a tenant. If the property is badly damaged, standard insurance policies will cover the cost of alternative accommodation but will not necessarily cover the loss of rental income.

Legal bills can also pose a problem if you don’t have the right insurance. For example, homeowners can be held liable if a tradesperson carrying out work to the property is injured, but if you have specialist insurance, personal legal liability should be covered by the policy.

Tony Armitage, Paragon’s insurance director, said: “Landlords need to carefully consider their insurance needs and ensure that they are properly protected. Landlords have sophisticated insurance requirements for which a typical household policy is often unsuitable. The biggest irony is that some landlords are actually paying through the nose for potentially unsuitable cover.”