Owning an investment property comes with significant advantages. However, when you’re dependent on rental income for financial stability and reliant on tenants to do the right thing, it also poses significant risks.
Unlike standard home insurance, landlord insurance provides an effective way to mitigate these risks and protect against unforeseen events. Given how much is out of your control – tenants unexpectedly stopping rent payments, damage from natural disasters, potential legal expenses – it can pay off to have adequate coverage and peace of mind.
In this article, we’ll walk you through just why landlord insurance is important, and some of the essential points landlords should be aware of.
What is Landlord Insurance?
Landlord insurance is a specialised insurance policy designed to protect landlords from the unique risks associated with renting their properties to tenants. This type of insurance is in addition to standard home insurance coverage for the physical building and its contents; and is similar to strata home insurance.
What Does it Cover?
Unlike home and contents insurance, landlord insurance in Australia typically provides coverage for tenant-related issues. Having sufficient coverage minimises potential out-of-pocket expenses for events like:
Loss of Rental Income – This component compensates for rental income lost if your property becomes uninhabitable due to an insurable event. Save yourself from weeks or months of lost income by taking out sufficient landlord insurance.
Tenant-Related Risks – This covers damages caused by tenants—whether intentional or accidental—and theft by tenants in the event that it occurs. Some policies will also cover you for lock changes if you’re put in the difficult position of evicting tenants and fear them coming back. As this may be an optional expense under some policies, it’s always best to review carefully what is and isn’t included under various insurers.
Legal Costs – While some landlord insurance policies include this, many require a premium to cover legal expenses arising from disputes with tenants.
Property Damage – This coverage includes damages to your building and some contents, caused by tenants or natural disasters.
Liability Cover – If a tenant or visitor is injured on your property, this will typically cover related compensation and legal fees.
Why is Landlord Insurance So Important?
Taking out adequate landlord insurance minimises risk. It’s your way of protecting yourself against and accounting for the unexpected, as much as possible. Here are two reasons why you need it:
1. It Helps You Mitigate Financial Loss
For many landlords, rental income is a huge part of their financial strategy. In some cases, it’s what helps them cover mortgage payments, maintenance costs and other related expenses. However, if your property suddenly becomes uninhabitable due to tenants defaulting on their rent or natural damage, this could significantly disrupt your income stream.
Landlord insurance helps mitigate the risk of complete financial loss by compensating you for lost rental income when your property isn’t generating revenue.
In this current economic climate and rental property crisis, it’s unfortunately becoming more and more common for tenants to default on their rent due to financial difficulties or loss of employment. Landlord insurance gives you that peace of mind that whatever happens, you’re covered.
2. It Protects Your Investment
Rental properties face threats that can damage property and leave you with thousands of dollars worth of repairs. Whether this be a severe storm, fire, or tenant vandalism, these events can lead to significant costs.
Landlord insurance financially protects you against these risks, covering the cost of repairs and in some instances, the cost of replacing damaged fixtures and fittings.
With climate change on the rise, and Australia oscillating between seasons of severe bushfire or drought, landlord insurance can give you assurance that your investment is protected against such events.
3. It Covers You Against Liabilities
When it comes to renting out your property, you as a landlord have various responsibilities to ensure that your rental property is safe for tenants and free from hazards.
If a tenant or visitor is injured on your property, you could therefore be held liable. Unfortunately, liability claims can result in hefty legal fees, compensation payouts and court procedures. All these factors could significantly impact your financial position.
Landlord insurance includes liability coverage in these instances, so you don’t have to worry about suddenly being out-of-pocket if or when an accident occurs.
Choosing the Right Landlord Insurance for You
Picking the right landlord insurance policy is a matter of choosing a comprehensive cover that’s tailored to your specific needs. Here are some things to look out for:
What’s Included?
Review the policy to make sure that it covers the essential risks associated with renting out a property. Look for one that includes property damage, loss of rental income, tenant-related risks, and liability.
Additional Coverage Options
Consider whether you want additional coverage. You might consider things like how common natural disasters are in your area, or take out coverage if you’ve provided a furnished rental property and want to protect the contents.
What’s Excluded?
In a similar vein, be mindful of any exclusions in the policy. It’s crucial to understand these exclusions to avoid surprises in the event of a claim.
Premiums and Excess
Compare the premiums and excess amounts for different policies. While finding a policy that fits your budget is essential, make sure you’ve balanced adequate coverage with the premium you’re paying. You don’t want to be underinsured in the long run.
Read Reviews
Spend time reading reviews of customer service and claims handling for different insurers. You want to go with someone who is responsive and empathetic.
In a world where so much can go wrong, landlord insurance is one way to make things right. Being underinsured or not insured at all can leave you with a financial burden, so be sure to spend time researching and picking the right one for you.
