What is landlord insurance and do I need it?

Discover how landlord insurance can save you thousands

Landlord insurance is an insurance policy designed to protect your investment property. There will always be risks associated with owning a property so this insurance will help safeguard it. Generally speaking, landlord insurance will cover events that can cause a loss of rental income, theft, or damage to your property. 

You’ll find that landlord insurance is available from most of the big insurance providers in Australia. So you will have the luxury of comparing and choosing between several different insurance products. While you’re comparing these options, you’ll often find there are three major areas covered by landlord insurance:

• Loss of rental income
• Damage to the property’s structure
• Damage to what’s inside the property (e.g appliances, carpets)

Landlord insurance can be used for all sorts of investment properties. These property types include houses, units, apartments, villas, and townhouses.

What’s the difference between landlord insurance and home insurance?

Landlord insurance often gives you the same level of cover as a standard home insurance policy. One of the main differences between the two insurance options is the protection against damage or loss caused by tenancy issues.

What are the exact items I can get covered with landlord insurance?

Items covered by landlord insurance usually fall under building, contents, and tenancy categories. Below are the most common examples of items you can be covered for. 

Building cover

This covers damage to the structure of your investment property as a result of:

• Explosions
• Earthquake
• Floods 
• Falling trees
• Fires
• Lightning strikes
• Storm damage
• Vandalism
• Vehicle collisions
• Water damage

Tenancy cover

This covers any damage caused by the tenants of your property.

• Liability
• Loss of rent
• Rent default
• Legal expenses taking tenants to court
• Damage or theft by tenants or the tenants’ invited guests

Contents cover

This covers damage to the contents of your property as a result of:

• Fires
• Floods
• Vandalism
• Explosions
• Earthquake
• Falling trees
• Vehicle collisions
• Water damage

What is landlord public liability insurance?

Public liability insurance is generally defined as “an insurance that covers a person or business for costs from legal action if they are found liable for death or injury, loss or damage of property resulting from negligence.” While there is a clear definition you may find that every insurer’s policy may be different

Generally speaking, this insurance type is meant to cover the landlord for death, injury, or damage that happens to the tenant on the property. These items are included because they could fall under the responsibility of the landlord. 

Landlord insurance policies tend to include a version of public liability insurance in the terms and conditions already. So sometimes there’s no need to chase this up separately. In some cases, you may find that liability cover can insure your legal liability for up to $20 million. This cover includes:

• Damages that are awarded to the tenant
• The legal costs charged to the landlord for defending the claim
• The tenant’s legal costs if the landlord ends up being at fault

Can landlord insurance cover my AirBnb?

If you own a rental property in popular holiday destination then there’s a good chance you’re already using it as an AirBnb. If you are worried about covering your property for this scenario there are short-term landlord insurance options available. These policies are perfect for people who choose to rent out their property for a short period of time. 

These policies cover situations unique to short-term rentals. One example of these situations includes the guest’s failure to leave the property when the stay is complete. You’ll also find that rental listing sites like Airbnb and Stayz offer their own versions of protection. For example, Airbnb offers ‘host protection insurance’ and ‘host guarantee’ policies which provide up to $1 million US worth of liability cover and protection against damages caused to the property. 

But be wary that the policies from these rental sites are not a clear substitute for landlord insurance. The insurance council of Australia (ICA) has warned people who rent properties on a short-term basis that they might not be covered if they don’t have landlord insurance.

How is the cost of landlord insurance calculated?

After looking at a few policies you will notice that there is not one set premium for these. The cost of the policy is often determined by the following factors. 

• The value of your property and the contents
• The type of property you are renting out
• The current structural integrity of the house
• Your current claims history
• The location of your rental property
• The level of security you have for the property
• The state you live in
• Additional policy inclusions that you choose

With so many different factors you can see how hard it is to come up with an exact amount for how much a policy will cost. On average, policies in Australia can range between $1,000 to $2,000. To get an estimate for your insurance policy, you’ll find that most insurers offer an online calculator. These are usually located on the insurer’s website. 

So do I need landlord insurance?

If you’re asking this question, then it’s worth weighing up if it’s worth paying for a premium when something might not even happen to your property. For some people, the answer is no thanks to the large premium they don’t want to pay. But when you don’t pay a premium you’re taking a very risky chance that something might not happen. 

While landlord insurance premiums may seem costly, they can be tax-deductible. So there’s some good news when it comes to paying them off. At least you’ll get some of it back when tax time rolls around. If by chance you do get a payout from your insurance you can expect it to vastly outweigh the costs you had for the insurance premium. In some cases, policies can have you covered for millions of dollars. 

According to the numbers from QBE Insurance, 34% of all landlord insurance claims are for storm and flood damage. Damage to pipes counts for 21%, tenants defaulting on rent counts for 12%, and theft sits around 10%. 

So as a property investor, it’s at least worth considering taking out landlord insurance. It could provide you with the financial assistance you need when costly damage occurs to your property. 

What we suggest

So if you rent an investment property, it’s likely that landlord insurance is worth the investment. It gives you protection for a wide range of events that can damage your property. These events include natural disasters, stormy weather, theft, and tenants abandoning their agreement. 

There are also ways you could potentially minimise the risk of taking out a claim. Consider our following suggestions:

• Pick a house in a good suburb that’s less prone to crime
• Pick trustworthy tenants that fit the mould of who you want to be in your property
• Pick a suburb that doesn’t have a long history of natural disaster events like bushfires and floods

Just make sure you carry out thorough research on any insurance cover you decide on. Review all documentation before you sign on the dotted line and don’t be afraid to ask around. Look for reviews and try and get advice from someone else who’s taken out the same policy. The more information you have, the more confident you will be about your choice of insurance policy.

For more great resources on property management, visit propertymanagersmelb.com.au.

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