Rental Property Insurance - Do I Need It?

​Rental Property Insurance, more commonly referred to as Landlord Insurance, is an essential in the property investor's toolkit. In this article we discuss what landlord insurance is, the approximate cost, and an indication of the most common types of landlord insurance claims.

​What Does Rental Property Insurance (Landlord Insurance) Cover?

​Landlord insurance is an essential insurance cover for a landlord, covering many aspects of their investment property beyond typical home and contents insurance products. 

For a relatively small cost, a landlord can have coverage for damage to buildings and contents as well as for rental default and damage by tenants.

For example, landlord insurance typically covers the landlord for the following (and much more):

• Loss of rental income - for example, if a tenant vacates without giving the agreed notice, vacates without paying rent which is owed, if a tenant dies during the lease period, or if the property is untenantable
• Building and contents - covers for accidental loss or damage to contents, deliberate or malicious damage to the property, pet damage, scorching such as cigarette burns
• Additional expenses - in some circumstances the insurance will cover cost such as as legal expenses, cost for engaging a sheriff to evict a tenant, replacement of locks, removal of a tenant's goods

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The above points are a sample of what landlord insurance can provide coverage for. We've seen countless instances where landlord insurance pays for itself many times over, when the unexpected happens.

That said, in our experience it is very uncommon that a landlord insurance claim is initiated because of the dreaded (and rare!) case of "tenants trashing the place".

Most of the claims we have assisted our investors with are due to loss of rent, often as a result of a deterioration of an otherwise great tenancy due to an unforeseen circumstance such as relationship breakdown or loss of employment. 

​How Much Is Rental Property Insurance (Landlord Insurance)?

The cost of landlord insurance varies with factors such as where the property is located, the type of property (house, unit, number of bedrooms, etc) and how secure the property is. 

Data provided by Finder.com.au and Canstar.com.au indicate a range of yearly premiums, starting from around $1,500 p.a. and ranging to upwards of $2,000 p.a. Typically these costs are inclusive of building and landlord insurance, so this cost would generally replace any existing building or building and contents insurance policy you would have over a property.

Landlord Insurance During COVID-19

At the time of writing, it should be noted that COVID-19 has impacted the number of insurers offering new landlord insurance policies and the extent to which they cover rental default. Be aware of this and always look for an insurer who will cover rental default if a tenant is unable to continue to pay the rent. Keep in mind, this is one of the most common types of landlord insurance claims.

The Most Common Types of Landlord Insurance Claims

​​According to Terri Scheer and various other sources including as domain.com.au and canstar.com.au, the most common landlord insurance claims are for:

• Loss of rental income - largely due to absconding or defaulting tenants failing to pay rent
• Malicious and accidental damage - including such activity as holes punched in walls, doors that have been kicked in, and damage and vandalism to carpets and floors
• Water damage - this is distinct from flood or storm water damage, and relates to  water damage from appliances and fittings, such as leaks, burst pipes, and sinks, etc. 
• Death of a tenant - perhaps surprisingly, the fourth most common landlord insurance claim is due to death of a tenant. While this would be a difficult time for all and compassion and care are of course required, your investment property is a financial investment and must continue to generate income. 
• Storm damage

When Should You Get Landlord Insurance?

​​Generally, landlord insurance should be taken as soon as you have purchased the investment property. Remember, cover can be started at any time but can't be backdated. As a landlord you have liability exposure from the time you or your property manager begin showing potential tenants through the property. 

If you are seeking a focused, experienced, transparent and professional property management team servicing Newcastle and Lake Macquarie areas, contact us now. We'd love to meet you and discuss your investment. 

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