Back to Basics: Landlord Insurance

If you’re a landlord, you may be wondering what landlord insurance covers and what the benefits are exactly?

Your property is an asset you’ve worked hard to purchase. You want that asset to work hard in return and earn you a rental income. Having landlord insurance protects you financially against the risks that come with renting your property out.

We always want to think the best of others and while most tenants take good care of the property they are leasing, those that don’t may intentionally cause extensive damage. Any intentional damage to a rental property is not usually covered by a standard home and contents insurance or a body corporate/strata insurance policy.

And what happens if your tenant just packs up and leaves? Or fails to pay rent for an extended period of time? Both of these scenarios can lead to significant loss of rental income.

Landlord insurance is like a security blanket for property investors. It is a type of insurance that specifically covers risks that are unique to leasing a property. A comprehensive policy can offer landlords peace of mind and assurance, protecting you from substantial expenses and losses. You can rest easy knowing that if something does go wrong, your out-of-pocket costs will be minimised.

A landlord insurance policy covers most tenant-related risks including loss of rental income, and loss or damage by tenants to your property and contents including:

1. Loss of rental income from tenant default

Protects you from loss of rental income as a result of scenarios such as defaulting or absconding tenants, death of a tenant, hardship and failure to give vacant possession.

2. Loss of rental income from an insured event

Protects you from loss of rental income as a result of an insured event such as a fire, or flood, as your tenants can’t live in the property until the property is habitable again.

3. Contents

Can protect overlooked furnishings such as curtains, carpets, blinds and light fittings from accidental loss or damage, flood, water damage, malicious damage, fire or explosion.

4. Building

Can protect your building against loss or damage caused by tenants and/or their invited guests including accidental, deliberate or malicious damage, pet damage and theft.

What’s the difference between landlord insurance and building insurance?

Building insurance covers you for the structure of your property in the case of damage caused by events such as fires, explosions, storms, floods and earthquakes. Landlord insurance is a little more complicated and insures you against loss of income or damage to your property while renting it out to tenants.

Why do I need landlord insurance?

Without insurance, investment property owners stand to lose significant rental income dollars that exceed the initial bond amount. For example, evicting and replacing a tenant who has stopped paying rent can take a long time. During that time, your precious rental dollars are not being received while your investment loan repayments still need to be made! Landlord insurance can alleviate some of the financial stress.

In the case of tenant damage – accidental or otherwise – repair costs quickly add up and rental income can stop while repairs are undertaken. These headaches can be easily avoided with a sound insurance policy specifically tailored for landlords.

What does landlord insurance typically cover?

Landlord insurance protects you financially against the risks of renting out your property that aren’t covered by other types of home and contents insurance policies.

Some of these risks may include:

Theft or burglary by tenants (or their guests)

Damage to building or permanent fittings and fixtures caused by tenants (or their guests)

Loss of rent due to a tenant defaulting on rental payments (this is especially important if you’re relying on rent to pay your mortgage repayments)

Legal expenses associated with tenant disputes

Damage to permanent fittings and fixtures caused by explosion, flood, or fire

Loss of rent if property becomes uninhabitable due to repairs from an insured event

Questions for your insurer

Insurance policies vary in value. And the fine print of each policy will be very different, so it’s important to ask your insurer the right questions and combe through the inclusions and exclusions carefully.

When shopping around, keep the following questions handy:

Are there limits on the amount I can claim when a tenant fails to pay rent?

Is malicious damage caused by tenants or their friends included under the policy? (Some policies only include accidental damage)

In the event of flood or fire damage, am I also covered for loss of rent during repair works?

Will I get reimbursed for re-letting expenses if a tenant has to be evicted, or they break their lease agreement?

Does the policy include professional tax audit fees?

Are there restrictions on claims for legal expenses in the case of tenant disputes?

Your property – taking out a tailored insurance policy

The thing about landlord insurance is it works best when your policy is tailored to your property – i.e. you’re covered for the risks that pose the greatest threat. Every property presents different risks.

To identify your insurance needs, consider the following questions:

Will I be renting out to long-term or short-term tenants? (If you intend to rent your property as a holiday let, you may have specialised short-term rental insurance requirements)

Will I rent my property out furnished or unfurnished?

(If you choose the furnished option, you’ll need to find an insurer who can incorporate contents insurance into your insurance package)

Is my property located within a flood, fire or tsunami zone?

(You can call the local council to find out, or the insurer may be able to check for you. Either way, make sure you take out a policy that protects you against loss of income and damage caused by such events)

Getting a great deal on your landlord insurance

As with any important purchase, it pays to shop around before you commit. Each insurer will ‘package’ the costs and benefits up differently, and the cheapest policy may not necessarily give you the best value for money.

Getting great value out of your landlord insurance policy

A successful rental property is managed like a business. That means being professional, maintain your property, keeping records and having adequate insurances in place so you get the financial protection you need.

To get the most out of your landlord insurance policy, it’s worth considering a few simple tips:

Get insurance before renting out your property: you’re entering the unknown with a new tenant, so you want to have insurance in place to have protection just in case.

Conduct regular inspections: You want to know your tenants are looking after your property. If they’re not, you need to identify issues before they escalate.

Keep detailed reports (including supporting photographs): This way, you’ll be able to back up your arguments for making a claim.

Source: https://www.iselect.com.au/home-and-contents/landlord-insurance/what-is-landlord-insurance/