What does Landlord Insurance cover?
Becoming a property investor is a huge achievement, but it comes with a lot of responsibility. Renting out a property you've worked hard to acquire involves trusting someone else to take care of it. This means there’s always going to be an element of risk – even among the most responsible of tenants.
Landlord insurance is a lot like building insurance or building and contents insurance, but it can also cover you for a number of common risks associated with renting out your property such as:
● Malicious acts, burglary or theft by tenants.
● Legal expenses incurred as a result of a tenant failing to pay rent.
● Damage to your property caused by pets. (Note: In some states and territories, such as Victoria, it’s illegal to refuse pets without a valid reason.)
● Denial of access to tenants by a government authority.
● Loss of rent due to a tenant not paying rent. (Note: Some landlord insurance policies do not provide cover if your tenant is unable to meet rent obligations due to financial stresses caused by COVID-19. Talk to your financial institution or insurance provider to find out how they can help.)
What happens if you don't have Landlord Insurance?
Landlord insurance isn't always mandatory, but it may be a requirement for an investment loan. Regardless, it’s well worth the investment. Without it, you may be liable for any damages caused by tenants, their guests, and pets. This could result in out-of-pocket expenses like paying for unforeseen repairs – if their dogs scratch at the door frames when they want to go out for a walk.
While you can try to mitigate the probability of incidents by carefully screening prospective tenants, it's unfortunately not a foolproof strategy. Even reliable and honest tenants can hit hard times and end up defaulting on rent. And accidents can happen to anyone. For example, if a tenant injures themselves on your property, you may find yourself having to pay a hefty liability claim that could run in the hundreds of thousands of dollars.
So, if you're relying on rent as income or to cover your borrowing costs, landlord insurance for a rental property could help you recover financial losses that may occur.
What to look for in a Landlord Insurance policy
Just like any other type of insurance, finding a policy that's right can take time. It's important to read the terms and conditions in the product disclosure statement (PDS) carefully, find out what is and isn't covered and ensure you know what the excess is in the event you need to make a claim. Here are a few things property investors should keep in mind when shopping around for landlord insurance.
1. What is and isn't covered
One of the key things to look for is the extent of your coverage. When comparing policies, check to see if the policy or the optional inclusions cover the following:
● Legal costs associated with evicting tenants.
● Burglary or theft by tenants or their guests.
● Vandalism or damage to your property caused by tenants, their guests and pets.
● Damage caused by natural disasters. This is an important one if the property is in an area prone to things like flooding and fires.
● Public liability cover in the event your tenant, someone else, or even you get injured while at your property.
● Loss of rent in the event your tenant defaults on their payments.
2. How much it costs
When it comes to landlord insurance policies, the price can vary substantially. It often depends on a number of factors, such as the property’s postcode (some are considered riskier than others), the condition of your property, what the walls are made of, the roof material, and how old it is. Keep in mind that the more you spend on landlord insurance, the bigger the chunk that comes out of your rental income. At the same time, you tend to get what you pay for so the most affordable policy may not cover everything you need.
3. Extras and incentives
Taking a look at what extras and incentives a landlord insurance policy offers can help you make a decision if you're having a hard time deciding what policy to go with. Some policies may cover things such as replacement of locks and keys, emergency storage of contents and repair of fixtures and features not covered in other policies.
While finding landlord insurance that's right for you can be overwhelming, doing some thorough research to find a policy that covers your investment can save you a lot of time in the future.