These days there’s insurance for, well, just about everything – houses, cars, holidays, pets… Some people hoard insurance like canned food come the apocalypse, others choose to wing it and face the consequences should they come. If you’re a property investor, odds are you’re in it for the financial security. You want your investment to be a success. But if you intend to rent it out, you’ll be trusting someone else to take care of it – and that comes with risks.
So, what is landlord insurance?
Basically, it covers you for the common risks associated with renting your property out.
- Theft or burglary by tenants
- Damage or vandalism to your property by tenants
- Loss of rent due to tenant default
- Legal expenses involved in evicting a tenant
If you don’t have landlord insurance, you’ll be liable for repair costs to your property should your tenants (or their guests) cause damage. While you can minimise the risks of this happening by putting prospective tenants through a rigorous screening process, it’s not only malicious tenants who cause damage.
Accidents do happen.
And if a renter is injured while staying on your property, you could be up for hundreds of thousands of dollars in liability claims.
Then there’s the risk of your tenant defaulting on their rent payments. The majority of tenants are sincere people who pay their rent on time every month, but even honest people hit difficult times—especially during economic downturns. You may be relying on their rent for income or using it to cover your borrowing expenses. Either way, can you afford to cover any periods for loss of rent?
What to look for in a reliable landlord insurance policy
As with any insurance policy, terms and conditions, what’s covered and not covered and the excess that applies if you make a claim, vary. So it’s important you shop around and get the best policy for your needs.
3 things to consider...
The more you pay, the larger the chunk deducted from your rental income. On the other hand, the cheapest insurance policies don’t always provide the best value for money. You want to consider the price and what the provider is willing to cover.
The cost of landlord insurance varies between territories and states. And some postcodes come with a higher risk factor (and therefore higher price tag). Insurers have to weigh up several factors when setting their price, including crime stats for the local area and the risk of natural disaster.
The good news is, landlord insurance isn’t overly expensive and because it’s an investment expense, it’s tax deductible.
- Inclusions and Exclusions
Unfortunately (as some unlucky landlords have already discovered like those involved in the NSW and Queensland floods recently), it pays to make sure you have the right inclusions. You want to make sure every aspect of your investment is protected.
So, when shopping around you might like to check each policy for the following:
- Damage caused by natural disasters (especially the ones prone to the area your property is located in)
- Loss of rent and any restrictions (like weekly rent limits)
- Damage caused by tenants, guests or their pets
- Theft or burglary by tenants (or guests)
- Public liability cover for injury to someone (including yourself) while visiting the property
- Legal costs associated with a tenant’s eviction
- Extras and incentives
If you’re struggling to decide between a few policies – see what extras they offer. Some policies cover re-letting expenses after a tenant eviction, replacement of keys and locks, or even tax audit insurance. These added extras could be the small difference to help sway your decision.
Questions to consider when choosing your landlord insurance policy...
The key to finding the right insurance policy is making sure it covers your individual needs. This means looking at the circumstances of your property and assessing its risks.
Some of the questions you may like to keep in mind are:
1. Do you need specialist insurance?
For example, strata titles need strata insurance (otherwise known as body corporate insurance). This is mandatory for every Australian state, however the legislative requirements can vary. Strata insurance is different to normal landlord insurance because you have to be covered for ‘common property’ under the management of a strata title or body corporate entity.
- If you’re renting your property out furnished, does the policy cover you for contents insurance?
And are there any circumstances for which your policy doesn’t cover your content? (Remember, the risk for damage to contents is greater when a property is rented out).
- Will you let your tenant keep pets?
In some states, you’re not allowed to refuse pets without a valid reason (this will be the case in Victoria in 2018 under new rental laws). In which case, does the policy cover you for accidental damage caused by pets?
4. Are there specific risks your property needs to be covered for?
For example, it may be located in a high-burglary or flood-risk zone.
Landlord insurance in a nutshell…
Some landlords live in the hope that nothing untoward will happen to their rental property. But it’s a risk given all the things that can go wrong. Even reliable tenants can make mistakes and cause you financial headaches.
Put simply, landlord insurance is one of the factors that could make or break the financial success of your property investment.