Many first time property investors don’t realise there can be significant differences with having landlord insurance to that of home/building insurance. Landlord insurance is designed to cover owners from specific risks associated with tenanted investment properties that aren’t always included in the cover of a general home/building and contents or strata title insurance policy. Expanding on this, by way of example, a base building insurance policy would only cover you for external/structural property damage as well as public liability. It would not cover you for malicious damage by tenants, loss of rental income due to property damage (e.g. fire) or failure of tenants to pay rent.
As with any insurance policy they aren’t all the same, so it is essential you have a landlord insurance policy that meets your requirements. Property Managers are well versed in this area and sometimes have access to policies that an owner who self-manages will not. Should you already have building and contents insurance on your property there are landlord insurance policies that can be taken out to cover the specific risks of owning a tenanted property.
Whilst landlord insurance is an additional cost having suitable cover in place will provide peace of mind and financial security in the event your tenancy arrangements deteriorate or unforeseen events occur (e.g. recent floods that left owners without rental income from their properties). Also keep in mind that without selecting the appropriate policy all you are really leaving yourself with is an additional expense with no real benefits, I would suggest paying particular attention to the excess fees payable.
Some suggestions as to what you may want your policy to include:
Malicious damage by tenant or their guests – Malicious damage covers situations where tenants or their guests have intentional damaged (not wear and tear) the property or contents e.g. carpets ripped, appliances smashed, holes in walls etc.
Accidental damage – This covers unintentional damage (not wear and tear) by a tenant e.g. The tenant accidentally breaks a glass door playing sport in the backyard.
Theft by tenant or their guests – This covers you if the tenant or their guests steal property/content e.g. dishwasher.
Loss of rent – Covering for loss of rent will give you financial security ensuring you maintain a consistent cash flow of rental income. Loss of rent can cover scenarios such as the tenant defaulting on their payments, the property becomes damaged and can’t be rented (flood, fire etc), death of tenant etc. The duration of coverage is quite variable depending on policy.
Liability – This will help cover your liability, including for a claim against you by the tenant.
Legal fees – This will help cover legal fees incurred in taking action against a tenant or vice versa.
It should also be noted landlord insurance is tax deductible. In a future post we will touch on the importance of income protection insurance.