Landlord insurance

Keeping your rental property safe from damage with landlord insurance.

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Even if you’re not living in your property, insuring it from potential damage is an absolute must. Entrusting one of your most valuable assets to another person or people can be daunting, particularly if they’re strangers to you as many tenants are to their landlords, so you should protect yourself from the worst-case scenarios. It’s not just designed to insure against your tenants, of course; anything could happen to your property that could cost you a fortune without landlord insurance. Find out all about it, how it works and how to compare the best policies available to you right now in this comprehensive guide.

What is landlord insurance and how does it work?

Landlord insurance is a type of home insurance designed specifically for investment or rental property owners. Because customers in these positions don’t live in their property, the manner of insurance is different to other home insurance policies; having a third party live in your home changes how insurers will view you. Landlords have the option of taking out either landlord building or landlord contents insurance for their policy or combining the two into one for more expanded coverage.

You’ll find that landlord insurance functions in a similar way to home and contents insurance in terms of the coverage it offers; you can often get coverage for extreme weather damage in events such as fires, floods and storms, for example. However, there are several key areas relating to your renting of the property to your tenants that are covered by landlord insurance exclusively. Here are some of the key areas for you to look out for as a landlord when insuring your property:

Loss of rent

This can come in a couple of different ways. Firstly, most insurance policies for rental property will cover you if you lose rent due to an insured event, such as a fire, flood or storm, which displaces your tenants. Different lenders will have different conditions when it comes to what events are covered under their policy, but you can expect that the standard insured events for home insurance will probably still apply.

This cover also extends to a loss of rent due to a tenant defaulting on or missing their payments. In this situation, your policy should cover your legal costs if you’re required to pursue your tenant for the lost income in court. Additionally, if you’re struggling to fill your property and are losing out on rent due to a lack of tenants, some insurance policies will cover the funds you would’ve collected had you found tenants. You may see types of insurance or insurance features refer to this as rent guarantee insurance.

Intentional or accidental damage by a tenant

If your tenants deliberately and maliciously cause damage to your property, you’ll have grounds to make a claim for your landlord insurance policy to cover the cost of repairs or replacement. This can extend to guests of your tenants, so a party that ends up with a drunken fist through the plaster of your wall can also be covered by landlord insurance.

You can also be covered for any accidental damage that your tenants or their guests may cause to your property. This can include anything from a cricket ball through your window to red wine stains on your nice white carpet. These will vary between lenders, but not all landlord insurance policies will cover accidental damage, so you should ensure that you keep the accidental damage component at the forefront of your mind when shopping around for insurance. It may be offered as an optional extra to be added for a further cost to your premiums in some instances.

Theft by a tenant

In a similar way to intentional damage, your landlord insurance policy can cover you in the event that your tenants steal from you or cause damage to your property in the process of stealing. This could include anything from furniture to artwork to electrical appliances that you had provided for them at the property. For furnished properties, it’s recommended that landlords take out a landlord contents insurance policy to protect against their possessions being stolen by tenants.

Legal cover

Under most landlord insurance policies, you’ll be covered for legal liability if one of your tenants or their guests are injured or killed due to an event you’re held responsible for as the property owner. Additionally, liability for any damage to their valuables as a result of an event at the property will also be covered under your landlord insurance policy. Depending on the insurer, policy and circumstances surrounding the event, you could be granted as much as $20 million in cover for your legal costs.

How much will I have to pay for my landlord insurance policy?

The answer to this question will differ depending on a variety of different factors, not least of which is the insurance policy you choose to go with. Each insurer will set their base premiums at different rates to begin with, so even if you’re meeting the same criteria with more than one lender, you’re unlikely to be charged the same or similar amount. Other variables that can affect the price of your landlord insurance policy include:

Landlord insurance cost variable How it can affect you
Property type and value
In terms of how much it costs to insure different property types, houses are generally more expensive than smaller properties like units or apartments. This is because they’re typically worth more, meaning you’ll be insuring your house for more than you’d insure a unit. By that same logic, the more valuable the house, the more expensive your premiums will be. You should also keep in mind that the materials that your property is made out of will impact your premiums, with properties boasting more solid foundations and structure tending to attract cheaper insurance given their relative safety.
Where the property is situated

The location of your property plays a major role in its perceived safety by your insurer also. Even if your house passes other safety checks, the location can still prove to be the undoing of a cheap insurance premium. For example, houses in areas more commonly affected by crime will tend to attract a greater premium charge, while those in areas more commonly affected by floods and bushfires will suffer the same fate. A prime example of this is housing in North Queensland, which can attract premiums more than doubled the national average due to the prevalence of cyclones and extreme weather throughout the year.

Its level of in-built security
You can see a theme developing here: insurers place a lot of stock in the safety of the properties that they’re insuring. More advanced security systems are always preferred, as they can serve as a deterrent for criminals looking to break in. Some of these features may include alarm systems and additional bolts installed on doors and windows.
Optional extras
While optional extras can make a world of difference to your landlord insurance policy’s coverage, they’ll unfortunately only add to the cost of your premiums. Sometimes these will seem necessary and unavoidable, such as motor burnout cover to insure the appliances that your tenants are using. While they’re obviously very handy to have, particularly when insuring an investment property, property owners may find that they won’t be able to pile on every extra possible due to the added financial commitment for their premiums. Only pay for coverage in the areas you need it, otherwise you could be sending funds down the drain.

The pros and cons of landlord insurance

If you’re still deciding on whether to take out a landlord insurance policy, here are some points to consider.

PROS

Tax deductible

In Australia, investment property-related expenses are tax-deductible, and landlord insurance premiums are no exception.

Tailored service

A landlord insurance policy offers protection to you in areas that other policies don’t, such as those relating to tenant-related damage or rental income.

Competitive premium rates

With plenty of insurers on the market offering landlord insurance policies, you’ll be able to find policies at competitive prices.

CONS

Another added investment cost

Landlord insurance policies, particularly those incorporating both building and contents insurance, can pile up on top of your own expenses. If your tenants are screened effectively, you might reason that insurance isn’t necessary.

Not every type of damage is covered

Make sure you read your insurance contract carefully, as insurers could have very complex definitions when it comes to whether certain damage types qualify for cover.

Understanding the language

Landlord insurance policies can be more complicated than most regarding the terminology used in contracts, so it’s important to do your research to find out exactly what everything might mean

Any other landlord insurance questions?

Here are some of the most common queries from people when finding out about landlord insurance

Can I take out a landlord insurance policy if I operate on a short-term rental basis?

Yes – property investors who operate through short-term rental host sites like Airbnb are able to receive a landlord insurance policy despite the unique nature of their tenancy. This can be useful for property owners in this position, as many shorter-term insurance policies neglect to cover loss of income due to a lack of residents.

Will I be covered for loss of rental income if my tenant passes away?

Yes – most landlord insurance policies will cover you for loss of rental income if your tenant dies whilst living in your home. This can also occur if one of two or more tenants dies and the remaining occupants become unable to make rental payments.

Will I have to change my insurance policy if I decide to move into my investment property?

Yes – once the rental property owner moves into the property covered by landlord insurance, the agreement becomes invalid. Speak to your insurer if you’re considering doing this to see what your insurance options are.

Is it too late to take out a landlord insurance policy if my tenants have already defaulted?

Probably, yes – you’re unlikely to find an insurer who will agree to take you on as a customer under those circumstances. To prevent yourself from falling into this position, you should always take out your insurance policy before, or very soon after, your tenants move in.

Should I stick with the same landlord insurance policy?

If your premiums haven’t increased, yes – however, many customers will find that their loyalty with their insurance provider will bring with it an increased cost to premiums. It’s always recommended to look around for new insurance policies whenever your renewal time is coming up, rather than settling for your current insurer because it’s easier. Savvy is a great resource for you in the landlord insurance comparison process, as we compare the top insurers and policies on the market to make life simpler for you. Decide on which landlord insurance policy to go with based on the factors that matter the most to you, which you can find out about at Savvy.