Best Landlord Insurance

Is it worth getting landlord insurance?

There are plenty of risks involved with owning a property and leasing it for residential purposes. These risks can be relatively minor (like a tenant putting picture hooks in a wall) or major (like tenants maliciously damaging property or failing to pay rent). These can represent a major loss of income for a landlord, as well as an ongoing cause of stress.

While no insurance policy covers every possible outcome of foreseeable loss for a landlord, insurance can go some way in providing peace of mind that if an insurable event does occur, you are financially protected from the worst of it.

Isn’t this what a rental bond is for?

A rental bond is paid by a tenant to the landlord or property manager before they move in. It’s like a security deposit, and if a tenant breaks the terms of their tenancy agreement, a landlord can take this money from the bond. They can also withhold bond money for the reasonable cost of repair or replacement, cleaning, and rent owed, among other things.

However, a bond is typically equal to 4 weeks of tent. If there is considerable damage to the property (for example, malicious damage) or a tenant stops paying rent altogether, a bond isn’t going to adequately compensate you for these losses.

What about legal action?

If you don’t have landlord insurance, there’s always the option of taking legal action to recover losses. However, this is often a highly expensive and slow, drawn-out process. You may find yourself spending more than you actually lost in the first place - not just money, but time and energy, too.

How much does landlord’s insurance cost?

No two policies will cost the same, and the price of a premium varies based on the factors that insurers take into account when calculating the level of risk for them. These factors include:

• Property value: A higher-priced property will result in a more expensive insurance premium.
• The value of the contents you’re insuring.
• The type of property you’re renting out, i.e. whether it's a house or a unit. A house is more expensive to insure, since there is a higher potential for risks.
• Location of the property: This takes into account factors like crime statistics in the area.
• Level of buildng security. For example, if all apartments in the building are fitted with an alarm system, it can bring down the cost of a premium.
• How extensive your policy is. The more extras you include (e.g. tax audit cover and legal expenses) the more expensive your insurance will be.
• Claims history: If you've made a number of claims on your landlord insurance in the past, this will increase the cost of a premium.
• Your choice of insurer. Since all insurance companies calculate risk in different ways, the cost of premiums will be different even if you input all the same information to get a quote.

Types of Landlord Insurance

Tenant default

If you own an investment property, the last thing you want is for your tenants to stop paying rent. It’s always a possibility, no matter how rigorous your pre-tenancy checks are. Even the best tenants may suddenly lose their job, or otherwise run into financial hardship that prevents them from being able to pay rent on time.

The majority of landlord insurance claims are for tenant default - to recoup lost rent money. Rent default insurance can help when tenants don’t pay rent when it’s due, or when tenants break their lease - for example, they move out before the lease expires and stop paying rent.

The specific conditions you’ll be able to claim for tenant default from your insurance company will be outlined in detail in the PDS, or Product Disclosure Statement. For example, the PDS may state that the insurer agrees to pay for a certain number of weeks of missed rent, or up to a certain dollar amount.

Loss of Rental Income

This type of insurance also compensates you for loss of rent, but not due to tenant default. This provides cover in the event that your building requires repairs or rebuilding, and the property is unliveable by tenants for this period of time.

Tenant damage

When a tenant damages the apartment or house they’re renting, it can be accidental, intentional or malicious. Most landlord insurance policies will cover losses caused by intentional and malicious damage, while accidental damage is usually an optional extra.

Accidental damage

Theis covers sudden and unexpected events that result in loss or damage, such as wine spilled on carpets or a wall being scraped by a couch that's being moved.

Intentional damage

This refers to wilful damage done by tenants without the landlord’s permission. DIY projects often fall within this scope, such as adding shelves to walls or repainting the walls.

Malicious damage

This is caused by acts that are motivated by malice. Examples include smashing windows, punching walls and acts of vandalism like graffitiing property.

Building cover

This is similar to home insurance, but for an investment property rather than a residential property. It protects against the building becoming damaged or destroyed. Building cover is not automatically a part of a landlord insurance policy, but you should be able to easily add it on.

Insured events

You will be covered if your building is destroyed or damaged by an ‘insured event’ listed in your policy, such as a fire, floor, earthquake, cyclone, storm, lightning or explosions.

Structural problems

This covers damage to the structure of a property, such as damage to pipes, cables, plumbing or gas systems, fittings or fixtures, blinds and awnings outside the property, and some external structures like fences.

If your investment property is part of a strata scheme, then the body corporate should have building and public liability insurance when it comes to making structural improvements to the outside of the building. However, this won’t insure against damage to the inside of the property. For example, if a water pipe bursts, then the owner’s corporation insurance should cover the cost of repairing the pipe, but not any damage to floorboards caused by the burst water pipe.

Other events that may be covered by building insurance

Water damage, theft by tenants or an external party, damage to the building resulting from theft or attempted theft, pet damage to the property, scorching of property - for example from irons or cigarettes, debris removal, demolition, and the cost of rebuilding.

Contents cover

This covers the landlord’s contents in the rental property, and possessions the landlord is legally responsible for. If items are damaged, destroyed, stolen or they stop working properly while a tenant is renting the premises, then you may be covered under insurance.

Contents can include furnishings such as carpets, curtains and blinds. If you’re renting out a furnished apartment or house, it will include beds and sofas. It can also include electrical appliances that aren’t fixtures - such as a coffee machine rather than a built-in dishwasher, which is part of the building and therefore falls under building cover.

Legal liability cover

Both landlords and property managers have a duty of care to provide a safe and habitable property to tenants. If a tenant or their guest is injured while on a property that is dangerous or in a state of disrepair, they can make a legal liability claim against a landlord or agent.

Legal expenses cover

This covers the costs of taking legal action against a tenant, such as getting a tenant evicted by court order.

Tips for landlords

Buy landlord insurance as soon as possible.

There’s no point buying landlord insurance after a problem has arisen. If your tenant defaults on their rent and you purchase an insurance policy after they do this, you’re not going to be compensated by the insurance company.

Carefully read the Product Disclosure Statement.

It’s important to carefully read the PDS to be well-informed about which events or circumstances you are - and aren’t - covered for. Reading the fine print is essential to avoid a shock later down the line when your insurer doesn’t pay for damage you weren’t covered for in the first place.

If your insurer rejects your claim when you are in fact covered under a policy according to the PDS, you can use this knowledge to your benefit if you're contesting the claim rejection.

Regularly document the condition of the property

To avoid any unpleasant surprises, it’s good practice to conduct regular property inspections to ensure tenants are keeping the house or apartment in good condition.

Keeping detailed written reports, as well as photos, documenting the state of the property before and after the tenancy also helps your case to prove loss or damage to an insurance company in the event you need to make a claim.

Thoroughly compare your options

Insurance markets are competitive, and you should take advantage of this by shopping around to find the best policy for your property.

Make sure that before buying landlord insurance, you compare the following:

While comparing value for money may be easy enough to do on insurance companies websites, reading reviews can really help you learn more about an insurance company’s transparency, customer service, claim approval rate and claim resolution time. Simply scroll up to read real-to-life feedback from our trusted reviewers today.