What You Must Know About Landlord Insurance?

The fact that Australians are fond of investment property is well known and documented. Approximately two-million Aussies own property apart from their own dwelling and land. However, there is a vast gap between owning an investment property and being a savvy landlord.

The ins and outs of insurance for landlords are one of many areas unfamiliar to many property investors. When it comes to insurance for landlords, what you do not know can devastate you and your finances.

What is Landlord Insurance?

An insurance policy for landlords will offer cover for your investment property in a similar manner as the home and contents policy you have for the place that you dwell. The typical landlord policy will cover you for most issues, including:

  • Public liability
  • Theft and vandalism
  • Damage caused by storms, fires, and floods
  • The loss of rent due to a covered occurrence, for example, a flood makes first- floor rental units uninhabitable until substantial renovations are complete. The amount of rent money not collected during that time is something a landlord can claim.
  • Costs incurred because of taking legal action against a tenant
  • Tenant Default

You need to understand the details regarding your landlord’s insurance policy. Not knowing about your cover leaves you open to numerous issues.

What Occurrences or Situations Are Not Covered in a Standard Landlord Insurance Policy?

Even though insurers try to safeguard their clients from as many unfortunate circumstances as possible, here are seven situations where a standard policy will not pay. These exemptions from coverage include:

  1. Building Defects – Because landlord insurance cover protects the property owner from the risks involved in renting their property, defects in the structure are not a part of standard landlord cover. Insurers trust that property owners sufficiently inspected the building prior to purchase. So, investment property owners should address issues under home warranties and other policies.
  2. Fluctuations in the Market – Property investments carry the same inherent risks as other types of investments. For this reason, a landlord cannot claim losses that occur by the housing market or other mitigating factors.
  3. Mould – A landlord insurance policy will not cover the removal of nor damages caused by mould.
  4. Routine Expenses – Just as a standard homeowner’s policy does not cover the day-to-day costs of maintaining a home, landlord insurance will not cover expenses that are general expenditures made to support an investment property. For example, if a rental unit has a clogged drain and a plumber repairs it, a landlord cannot claim the plumber’s charges.
  5. Tenant’s Content – There is a common misconception that if you are a renter, the property owner’s insurance will cover damages or loss to your property on the premises. The fact is that a landlord policy will cover losses for property owned by the landlord. For example, hail damages outdoor furniture owned by the landlord and placed for public enjoyment. A landlord policy would cover the damages. However, if a tenant has their own outdoor furniture damaged, a landlord’s policy will not pay for the damages.
  6. Tenant Repairs – Generally, landlords’ frown on their renters doing DIY projects and with good reason. If a tenant messes up a repair, damages something else during a repair, or injures themselves or someone else while attempting a project, the landlord insurance most likely not cover the loss. The reason for this is that most policies contain the caveat that repairs or maintenance conducted by anyone other than a skilled professional will void the insurance policy.
  7. Wear And Tear – Landlord insurance will not cover typical wear and tear to a structure because this is not an unexpected event. It is the difference between a trellis rusting and falling and a trellis falling during a windstorm or a trellis damaged by vandals.

What is an Insurance Embargo and Will It Impact My Landlord Policy?

An insurance embargo is a restriction an insurer places on writing new policies in a specific region or during a particular condition. For example, if a cyclone is heading in the direction of investment property you recently purchased, you will not be able to take out insurance on that property. An embargo would likely be in place shortly after weather experts began tracking the cyclone. As a result of the current Covid-19 pandemic, there is currently an embargo on all Landlord policies for Rent Default Cover, meaning you cannot get this type of cover at the moment.

Often investment property owners believe the embargo means they do not have cover for disasters or weather-related losses. However, as long as your policy is in place before the loss happens, you have cover for your property.

signing forms for rental property

Why Do I Need Landlord Insurance if I Have a Rental Bond?

Make no mistake about it; rental bonds are smart and reliable strategies for landlords to protect themselves from financial losses. However, a rental bond is generally about the same amount as one- or two month’s rent. This amount may be sufficient for some of the following expenses:

  • Unpaid rent
  • Damages caused by your tenant or their guests
  • Cleaning costs
  • Abandoning a rental unit
  • Small losses you experience because of your tenant

As you can see, if you experience significant or extremely costly losses, a rental bond would only be a drop in the ocean.

For example, a tenant misjudges a turn and scrapes some paint from the side of your carport. A rental bond can probably pay to retouch the paint. However, if a tenant misjudges a turn and crashes through your carport, damaging its contents as well, your repairs will cost more than your rental bond.

What Are the Biggest Problems in Being a Landlord?

There are always two sides to a coin. Becoming a landlord is an excellent source of income and something most people can manage into their retirement years. Additionally, being a landlord comes with numerous responsibilities and risks you may not realise:

  • Unruly Tenants – Even if you try to screen your tenants well to weed out any that would cause problems, there is a chance that a tenant will become problematic. Often these problems come in the form of damage to your property. Other common tenant issues include lack of rent payment and complaints about them from other tenants.
  • Failure to Maintain Their Unit – Some tenants happily follow the rules and pay their rent on time but create headaches for landlords by neglecting the space they rent. Aside from cosmetic problems, lack of proper care often leads to structural issues as well as infestations of insects or other pests.
  • Poor Property Managers – Perhaps you hire a property manager to look after the day to day matters at your investment property. You may wish to believe that life as a landlord just became easy. Unfortunately, there are instances where a potential manager seems like a good fit in the interview but is lax with how they care for your property and enforce your rules.

What Are the Top Insurance Claims From Landlords?

While we see scores of claims from landlords, there are several that turn up with a great frequency. Here are the top five claims:

  • Loss of rental income which makes up more than half of all landlord claims
  • Intentional and accidental damages are frequently the cause of a landlord insurance claim. Depending on the nature of the damage, these claims can be quite costly
  • Tenant related water damage is a common issue for landlords. Whether it is an unreported leaking pipe, a bathtub running over, or a leaking washing machine make sure you are aware that your landlord insurance policy may exempt some types of tenant-related water damage
  • Storm damage is a typical reason for landlords to make insurance claims. Granted, these are more common in some regions than others.
  • Tenant death is surprisingly regular reason landlords lose rental income

If you have questions regarding landlord insurance or would like to get a quote, feel free to contact us at Grace Insurance. We are happy to meet your insurance needs.

Please Note: The material in this post is for informational use only. It should not replace a personalised consultation with an insurance expert who has the qualifications and abilities to get you the necessary cover.