Landlord’s Insurance – A Beginner’s Guide
Landlord’s insurance is an extremely important purchase for property investors to make. An outlay of only a few hundred dollars per year will cover you against several types of damages, including damage to buildings and contents, damage caused by tenants, and rental default.
It is important to carefully consider the coverage that you need to avoid unexpected and expensive repair bills; for example, some investors were not adequately covered against the Queensland floods. Don’t just assume that you are covered, and if there’s any doubt, it’s better to be over-insured rather than underinsured – while a cheaper policy may save a few hundred dollars per year, an unexpected repair bill can be much larger than this.
Choosing the right policy
As with buying any insurance, the key is to make sure that you are getting adequate coverage for your situation. The costs and levels of cover and service can be vastly different between policies. You should also investigate the claim process; in particular how and when you can make a claim (most insurers will have a 24-hour claim line), what must be provided in order to claim and how worst-case scenarios are handled, such as losing your receipts in a fire. Cover against acts of nature is essential. Australia, New Zealand and Japan have all recently experienced natural disasters; these can occur without warning and cause widespread devastation. Important events to check for coverage against include:
- Storm and lightning damage
- Flood (double-check the ‘type of flood’ being covered – for example, some policies exclude flooding caused by rivers bursting their banks)
- Tsunami and ‘ocean movements’
- Civil unrest and rioting
- Even if the risk of an event is relatively remote for your location, not taking cover against it is a big risk.
Check the conditions of your buildings cover; a buildings policy should protect structural elements of your property, including:
- Pipes and cables
- Fixed appliances
- Gas or plumbing systems
- Fixtures and fittings (except for carpets, loose floor coverings, curtains and internal blinds)
- Exterior blinds and awnings
- Certain external structures
Your policy should also protect you against the complete or partial destruction of your property, and will normally cover any loss of rent during periods where the property is uninhabitable. Cover for damage caused by tenants or their guests is typically included, however some insurance providers will charge a premium for this. If your property is a unit, the body corporate is usually responsible for insuring the fabric of the building and you must generally rely on their insurance for any structural damage. However, there are specialist types of insurance (typically called ‘strata title protection’ or something to that effect) that will cover you if the body corporate is not adequately insured.
You should make sure you understand the level of cover provided for contents, even if your investment property is unfurnished. Contents insurance covers any other items that aren’t considered to be structural elements of the property, such as:
- Household goods
- Internal blinds
- Loose floor coverings
- Any light fittings not permanently fixed to the buildings
- Domestic appliances and utensils
Contents insurance usually only covers the landlord’s property, not the tenant’s, and typically protects against damage caused by tenants or their guests, although some insurers will charge a premium for this.If your property is a unit, buildings insurance does not typically apply, so contents insurance is usually extended to cover fixtures and fittings that would otherwise be covered by buildings insurance. Also check for any conditions regarding claim limits, as these may apply to some items such as white goods, or items that are kept outside.
Probably the most important aspect of landlord’s insurance is cover against loss of rent. Most policies should cover against loss of rent due to:
- Court-ordered tenant eviction
- A tenant obtaining a hardship order
- A tenant dying unexpectedly
Many policies will only begin paying out after four weeks of lost rent (or charge an equivalent excess) so it is worth making sure you get the full four weeks of rent as a bond. Claim limits also vary greatly, with insurers paying anywhere between 12 weeks to a year of rent, or a fixed sum. Make sure you won’t be out of pocket if, for example, the property is extensively damaged and requires renovation.
Extras and incentives
Extra coverage is sometimes included on top of the ‘core’ types of cover above, such as:
- Legal liability cover to protect against injury or death caused by a landlord’s negligence
- Worker’s compensation (WA only)
- Automatic indexation of insured value
- Fusion or burnout of appliances with an electric motor
- Replacement of keys and locks
- Tax audit
Some insurers will also offer discounted rates in certain cases, for example, if you have multiple insured properties, or other types of policies with them such as car, health or home insurance, or if you are over 50 years old. Banks may also give discounts to customers that have mortgages or accounts with them. You should also try negotiating on price or features – while you might not get a discount you can sometimes secure benefits such as higher claim limits or a lower excess.