Renting out property can expose investors to a range of potential risks, as tenants are generally not held liable if natural or man-made catastrophes damage the rental property, if appliances malfunction, or if someone accidentally suffers an injury within the property’s premises. So, it pays for landlords to have some form of financial protection.
“Sophisticated investors understand their portfolios are the equivalent of income-producing businesses and wealth creation vehicles,” says Ken Raiss, director of Metropole Wealth Advisory.
“They don’t adopt a set and forget attitude, and then naively hope that it all works out in their financial favour. Rather, just like business owners, they make sure they have the necessary insurances in place to protect their assets should something bad happen.”
Among the essential coverages that property owners need to carry is landlord insurance, he says.
What is landlord insurance?
Landlord insurance provides protection against possible financial loss related to owning an investment property – and because paying for coverage is considered as an investment expense, the premiums are tax-deductible.
Most insurance companies in Australia provide this type of policy, which generally covers loss of rental income, and damage to the property’s structure and the contents inside it.
Landlord insurance applies to all kinds of investment properties – including houses, apartments, flats, and townhouses. However, it is different from homeowners insurance, which only provides coverage to owner-occupied dwellings.
What do landlord insurance policies cover?
Landlord insurance is designed to protect against financial loss arising from tenancy issues, and damage to the property and the things that are inside. Most policies also provide public liability coverage to pay for legal costs incurred from the litigation, settlement, and punitive damages resulting from injuries, illnesses, and death within the property’s premises.
Additionally, landlord insurance offers cover for loss of rental income in an event a property is uninhabitable due to damage, or if a tenant defaults on their payment. It also pays for the cost of fixing physical damage on the dwelling and repairing and replacing broken or stolen contents.
What is typically excluded from the policy?
However, not all types of damage are covered by landlord insurance. Some of the common exclusions are general wear and tear, damage caused by pets, insects, and rodents, and intentional damage to the property. Portions of the dwelling that are not rented out are likewise not covered. Similarly, landlord insurance does not apply if the owner has breached their leasing agreement with the tenants.
How much does landlord insurance cost?
Several factors come into play in determining the price of the premium – including the value of the property and its contents, the type of dwelling and its structural integrity, previously paid out claims, the property’s geographical location, and additional coverages.
On average, policies range between $1,000 and $2,000 annually. Yearly premiums in some locations, including North Queensland, which is prone to cyclones, can reach $3,000 to $4,000.
To find out how much coverage your property needs, it is best to consult an experienced broker from a reputable insurance provider.
Is landlord insurance necessary?
While Raiss says landlord insurance should be non-negotiable for all investors, there are some who think it is just an unnecessary expense.
“Some novice investors believe that having their own building insurance or relying on the insurances provided by their owners corporation or body corporate will be enough. Well, it’s not,” he says.
“Sure, building insurance will protect the physical building should it get damaged by fire or flood, but what about what happens inside the walls? What about the fixture and fittings, for example? An investor can’t insure contents, such as a tenant’s lounge suite, that they don’t actually own (unless it’s fully furnished).”
Raiss adds that carrying landlord insurance coverage yields a lot of benefits.
“One of the advantages of a landlord’s policy is that it insures the inside of the property such as flooring and window coverings,” he says. “It also provides cover for damage that may be caused by a tenant or one of their visitors as well as if they injure themselves inside your property.”
“On top of that, most landlord’s insurance policies include coverage for rental default if, say, the tenant absconds or if the property is damaged in a storm and you are unable to re-let it until repairs have been completed.”
But Raiss says the greatest benefit of taking a comprehensive landlord insurance policy is the peace of mind it provides to investors.
