Do I Need Landlord Insurance?
You need landlord insurance to mitigate the risks of renting out your property. While not legally required, it helps protect you against several factors that could cause financial losses. It can cover rental, building and content factors that you can be compensated for.
What is landlord insurance?
Landlord insurance is a type of insurance policy designed to protect investment property owners. The owner pays a specified sum called a premium to an insurance company, who compensates the owner for losses covered by that sum. A property owner takes on financial risks when renting out a property. These are generally in the form of rental income losses, property damage and damage to your possessions. Landlord insurance mitigates these and other risks. Landlord insurance is distinct from home insurance. Home insurance covers a property lived in by the owner as opposed to rented out to tenants.
What does landlord insurance cover in Australia?
Landlord insurance in Australia covers different aspects of a home, depending on the policy. Typically, the factors covered by landlord insurance policies fall into three main categories: rental, building and/or content insurance and legal liability.
Rental insurance
Landlord insurance protects owners against the risks of renting out their property, covering potential losses caused by tenants. Some of these factors directly relate to rent, like your tenants failing to make rental payments or the legal costs of taking your tenants to court. It can cover the losses from damage or theft to your property from tenants. Liability can also be covered if tenants are injured on the property. Landlord insurance is an important part of the paperwork involved in renting out your property.
Building insurance
Landlord insurance can cover costs in the event of a property’s structural damage. Different parts of the property, such as fixed appliances, pipes, cables, plumbing systems and fencing, can be covered. The damage can be the result of factors like weather, flooding, earthquakes, fires or vehicles. Rental losses that occur whilst your building is considered unliveable can also be covered by landlord insurance.
Contents insurance
Landlord insurance can cover theft or damage to the owner’s belongings within the property. Your policy determines which belongings are covered and if they are covered against theft or just damage. Content policies typically cover unfixed goods such as appliances, electronics, furnishings, decorations and gardening equipment. Damage can be from factors such as flooding, weather, earthquakes, fires or other people.
Legal Liability
Landlord insurance will protect the owner if someone is injured or their personal property is damaged as a result of the owner’s negligence. For example, if the rental property is in a poor state of repair.
What doesn't landlord insurance cover in Australia?
Your specific insurance policy determines what your landlord insurance covers. However, there are some costs that are generally not covered by landlord insurance policies.
Maintenance costs
Maintenance costs for the property are not typically covered by landlord insurance. Regular maintenance activities such as mowing the lawn or unclogging sinks are considered part of everyday costs for a property owner. Insurance policies are designed for unforeseen costs.
Repair costs
Repairs by tenants or landlords are not covered by landlord insurance. Landlord insurance only typically covers the cost of repairs done by professionals. If someone unqualified attempts repairs, the risk is higher, and the policy will not cover it.
Wear and tear
Wear and tear to a building over time is not covered by landlord insurance. Steady, gradual damage to parts of the building is too difficult to quantify. It is considered an expected expense. Damage must have a direct and identifiable cause to be covered.
Building defects
Building defects are not covered by landlord insurance. Problems with the building from the time it was built are treated as pre-existing issues. The liability for this is based on the issue at hand. If it is determined to be a design flaw, an architect can be liable. If the building process caused the issue, then a builder can be liable.
Tenant belongings
Content insurance covers the belongings of the owner but not the tenants. Insurance companies only cover the risk for the policyholder. Tenants are able to get renter’s insurance to cover their possessions.
Market conditions
Landlord insurance will not cover losses arising from market conditions. Investment is considered to contain inherent risk. It is too difficult for insurers to cover investment activities which would require accounting for market forces and the investor’s ability. The property market is constantly fluctuating and changing. Paying attention to market trends and making advisable investment decisions is the recommended course of action for property investors.
Embargoed threats
Landlord insurance policies do not cover risks that have an embargo on them. An embargo is a restriction or ban placed upon a good or activity. Insurance companies place embargoes on policies covering imminent threats that arise. This is because insurance is designed to cover unforeseen circumstances and imminent threats are by definition foreseeable. Policies that were taken out before a threat became imminent would still apply. For example, a public cyclone warning makes cyclone damage foreseeable. Insurance companies may embargo policies covering cyclone damage for a while to avoid the high likelihood of needing to pay them out. People who had insurance against cyclone damage before the public warning would be covered.
How much is landlord insurance?
Landlord insurance has a different cost depending on the insurance provider and insurance policy chosen. Some insurance policies cover more risk factors and cost more. The type of property influences the insurance cost. Units (which also encompass apartments and townhouses) have cheaper landlord insurance policies than houses. The average cost of landlord insurance premiums in Australia are $1862 for a home and $374 for an apartment. The cost of landlord insurance premiums can often be mitigated by claiming tax deductions. Consulting with a skilled property management company like Rental Management Australia can help you find the policy that suits you best.
Is landlord insurance compulsory?
Landlord insurance is not legally required to rent out an investment property. However, lenders may ask you to get landlord insurance if you have a mortgage. A lender like a bank will want to keep you in a financial position to make repayments. Landlord insurance helps to mitigate the risks of renting out a property and ensure you can continue repaying your debt.
Is landlord insurance worth it?
Landlord insurance is important to protect you from situations that may cause financial losses. It secures you against risks involving tenants, building damage and your possessions. However, it is important to pick the right insurance policy to suit your needs.
At RMA, we have a wealth of experience helping property owners. We manage over $5 billion worth of real estate nationally! Contact one of our experienced property managers to help you find the landlord insurance policy that’s right for you.