Purchasing a home will be one of your greatest assets, particularly if you intend it to be a rental property. Not only are you investing a great deal of money into a home, you are also trusting others to treat it as their own. Renting out an investment property entails a number of rewards but it’s not without risk. So, like everything that’s important to you, it’s important to protect it, because while your rental income could cease overnight, your mortgage won’t. This is where landlord insurance will help you to sleep soundly.
What is landlord insurance?
The majority of people are familiar with or have home and contents insurance, but it’s important to understand the cover landlord insurance provides that home and contents policies do not, including:
- Thefts caused by tenants;
- Malicious damage (not fair wear and tear), including by a pet;
- Loss of rent due to tenants’ default;
- Public liability;
- An unexpected death of an occupant;
- Changes of locks and removal of tenant’s goods after a claim on a rental loss;
- An event where the property is untenantable; and/or
- Legal expenses in the event you need to evict a tenant.
Ultimately, landlord insurance protects property owners from financial losses related to the rental property. However, not all policies are created equal, so it’s important to get the correct cover.
Handy Hint: Landlord insurance is considered an investment expense, so your policy premium is tax deductible!
What to look for in landlord insurance
Shopping around and reading the Product Disclosure Statement (PDS) for each policy will ensure you are covered for everything you consider crucial for your situation. Each landlord insurance policy not only varies in cost, but also in the extent to which it covers, so questions to consider when comparing policies include:
How much will the policy cost you?
This will vary significantly, depending on the type of cover you are considering. Look carefully at the policy, more expensive insurance doesn’t necessarily mean it will cover your home for everything you want and/or need. Be aware that insurers base their prices on the risks involved in certain areas. For example, your home may be in an area deemed as high-risk for having a tenant default or even a natural disaster, so insurance policies may cost you more than other areas.
How much is the excess payable on the policy?
This one is important, as you may get a great deal on the cost of the policy, but if something happens and the excess is extreme, it may blow your budget. Don’t be afraid to negotiate – you may not be able to get a discount, but you could negotiate higher claim limits or lower excess.
How many weeks of loss-of-rent does the policy cover?
This often varies depending on the cause of the loss-of-rent, such as the tenant defaulting on payments or damage that has made the building untenantable. Some insurers will pay 12 weeks rent, others up to 52 weeks, while some will pay a certain monetary value. As a result, it pays to understand your risks and the cover your policy provides for each to ensure you aren’t out-of-pocket in any circumstance.
Handy Hint: Many insurance policies only activate after four weeks, so make sure you get a bond that will cover you for this time or are certain your policy starts paying immediately when your tenants stop.
Does the policy cover natural disasters and storms?
Don’t get caught out thinking you are covered for a flood if the nearby river bank breaks, a destructive storm sweeps through, an earthquake occurs, or your property gets struck by lightning – it is not always the case.
Are you covered for a fire?
It seems obvious, but once again, is not always automatically included in the insurance policy.
What contents does it cover?
Carpet, curtains, furnishings, furniture, internal fittings, loose floor coverings, light fittings and domestic appliances are all key to consider when choosing a policy. It’s also important to note that, as a rule, landlord insurance won’t cover contents owned by the tenants.
What will the buildings cover actually pay for?
Consider whether the insurance policy covers complete or partial destruction, and investigate what you will be covered for in the occurrence of damage to pipes and cables, fixed appliances, gas or plumbing systems, exterior blinds and awnings, and external structures.
Handy Hint: Check how and when you can claim, so if the worst-case scenario occurs, you are prepared.
As a property owner, it is important to consider your options and become familiar with exactly what your insurance policies cover. The above questions are a perfect place to start when considering your options, but by no means the limit, so make sure you determine what type of cover you require and seek several options to compare. This will ensure you choose the right policy for your home and allow you to rest easy knowing that no matter what, your investment property will continue to reap the rewards.