Time to read : 5 Minutes
Understanding Landlord Insurance
Insurance is designed to offer financial protection for valuable assets. If you own a tenanted investment property that creates an income for you, it doesn’t get much more valuable.
But with so many types of insurance policies, deciding whether you need to add another one is an important decision.
To help you understand if landlord insurance is right for you, knowing what it covers you for – and what’s not covered – will help you make an informed decision.
Recovering from a bad reputation
It wasn’t long ago that insurance for landlords had a bad reputation – mainly because of the way some insurance companies aggressively pursued renters who had been blamed for accidental damage after the property investor owners had made a claim on their landlord insurance.
CHOICE and WEstjustice ran a joint campaign that showcased some of the worst behaviour, which included stories of renters who were the target of insurance providers trying to recoup funds they paid out to landlords who held the insurance policies. CHOICE called it ‘Robo-debt for insurance’.
The campaign revealed, for example, a young Victorian couple who received a bill of almost $78,00 from GIO – with just 14 days to pay it. Another tenant, Pedro, a Sydney-based Mexican migrant, was billed more than $133,000 for a fire in his apartment that was caused by an electrical fault when he wasn’t even at home.
But, unethical practices by some insurance companies aside, for landlords who want added protection over their valuable investment property asset, landlord insurance does offer some key differences that sets it apart from regular building insurance.
To decide whether landlord insurance is right for you, understanding those differences is important.
The difference between landlord insurance and building insurance
Building insurance
Put simply, home insurance helps cover the cost of repairs and/or rebuilding if your property is damaged in an insured event. Depending on your policy, these events may include:
burglary
fire (including bushfire)
flood
earthquake
cyclone
tsunami
Landlord insurance
There are many similarities, but landlord insurance provides additional cover for landlord-specific events, including:
loss of rent – caused by an absconding or defaulting tenant, death of a tenant, hardship, or prevention of access. Loss of rent in a landlord insurance policy may also ensure you keep receiving a rental income for a defined period, even if your investment property is made uninhabitable because of an insured event (fire, flood, etc). Most landlord insurance will cover rental payments for up to 12 months.
damage – malicious damage by tenants, or damage caused by pets and visitors to the rental property.
liability – legal liability to pay compensation for injury or property damage to third parties.
Additional cover may include defined amounts for a range of potential issues, such as replacement of locks, re-letting expenses, legal expenses and damage caused by attending emergency services.
And, because the expense of landlord insurance is directly related to your ability to earn income from your rental property, talk to your accountant to find out if your insurance premium is tax deductible.
Who offers landlord insurance?
Most general insurance providers in Australia can offer landlord insurance for property investors who own a house, unit, townhouse, or apartment. Depending on the policy, landlord insurance cover generally includes a combination of building insurance and the landlord-specific cover listed above.
If the property you rent out is fully or part-furnished, make sure contents insurance cover is part of the policy.
What’s not covered by landlord insurance?
If your tenant fancies themselves a home handyperson, it’s important to note that any DIY repairs resulting in damage to either your property’s structure, or the contents within it, will not be covered by your landlord insurance.
Peeling paint, damage caused by mould, building defects, tenant contents and ‘ordinary’ expenses (including paying for regular gardening, or the cost of calling a plumber to repair a blocked drain) are not covered.
Do you need landlord insurance?
Legally, no. There is no requirement that investment property owners must take out landlord insurance policies. Is it worth it? Well … maybe.
Like any insurance, it’s about measuring the cost of potential risk against the cost of your annual premiums.
To assess whether landlord insurance is a worthwhile investment for you, ask yourself some key questions:
How much will my budget suffer if my tenant stopped paying?
How would I pay for damage my tenant causes?
The reality is that, in these uncertain economic times, the risk of a tenant defaulting on their rental payments is very real.
And although the majority of tenants look after their rental properties, accidents can sometimes happen — and that can mean a costly repair bill for you.
Not all insurance policies are the same
No matter what type of insurance policy you’re considering – from pet insurance, to car insurance, or health insurance – comparing policies and shopping around is always a smart way to protect yourself.
When you’re armed with the right knowledge, you’ll make better choices – and hopefully get the cover you need at the price you want.
If you’ve decided landlord insurance is right for you, always double-check the Product Disclosure Statement (PDS) before you sign, to make sure you have a full understanding of all the inclusions — and those pesky exclusions that could leave you unprotected and out of pocket.
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
