If your client owns rental property in Australia, they may have to consider a form of insurance apart from the usual home and contents insurance to cover the property and what’s in it. This type of insurance is aptly called landlord insurance.
This form of coverage is invaluable for anyone who leases or rents out their property. Without it, the landlord will be held responsible for any damages caused by their tenants. The policy can minimize this type of risk and save the property owners a good amount of time and money.
So, how does landlord insurance work in Australia? What does it cover? How much do premiums cost? We’ll shed some light on these and more pertinent questions in this article. Remember to share this client education guide with policyholders to help them protect their investments and mitigate risks associated with rental properties.
First, what is landlord insurance? This is a type of policy that’s designed to protect rental or investment properties. Generally, there are three main categories of coverage:
To ensure that your client gets the most out of their policy, these are the kinds of coverage they can have:
This feature is meant to protect the landlord from claims of tenants or their guests who are injured while on the property. Liability coverage can pay for the legal expenses incurred by defending against liability claims.
Liability coverage is also meant to pay for the resulting judgments or settlements, in cases where the landlord is found to be liable.
This is perhaps the most vital feature of landlord insurance nowadays. Property damage coverage is more necessary than ever before, due to the alarming frequency and intensity of floods in certain parts of Australia. In fact, flooding has become such an issue that even Parliament has decided to step in and make an inquiry into the most recent major flood disasters and evaluate the impact on the insured.
Property damage coverage can help mitigate the damage or losses due to natural disasters like floods, bushfires, storm surges, and other natural calamities. This coverage can also cushion the losses from vandalism or theft. Note that landlord insurance covers the fixtures and fittings of the property, and not the tenant’s belongings in case of theft or vandalism. There is a separate type of insurance for a tenant’s possessions, which is sometimes called renter’s contents insurance.
This covers the loss of rental income due to natural calamities and legal disputes with tenants. If either occurrence renders the property uninhabitable, then this can cover for the loss of rental income that would have otherwise been collected. This coverage can also cover loss of rental income due to the tenant defaulting on their monthly or weekly rent.
Policies cover theft or damage to the property owner's possessions within the property. Your policy determines exactly which of these possessions are covered and if they are protected against theft or damage.
Contents coverage would typically cover unfixed goods such as white goods, furniture, electronics, decorations, and gardening equipment. Covered events include flooding, earthquakes, fires, theft, or vandalism.
If your property sustains structural damage due to a natural calamity or fortuitous event, then the insurance policy’s building insurance should cover the costs for repairs. Major parts of the property like the pipes, fencing, plumbing system, fixed appliances, and the like can be covered.
Damage to these vital parts of the property can be caused by extreme weather, earthquakes, fires, or even vehicles accidentally crashing into the property.
It’s difficult to provide a solid figure for a landlord insurance policy, but this article lists the average estimated costs of premiums per state and territory. Before you purchase a policy, it helps to remember that insurance costs depend on several factors:
Insuring a home would be higher compared to insuring a condominium unit. This is due to the high cost of rebuilding expenses for a damaged home, as opposed to rebuilding or repairing a damaged unit.
Also, the type of property can have higher or lower insurance costs due to its size – as homes are more likely to be bigger than the average condominium or apartment unit, expect to pay higher premiums.
3. The level of security features
If a property has more adequate security features like padlocks, deadbolt locks, CCTV cameras, and security guards, then the cost of insurance can be lower. The reason for this is that security features like these can significantly lower the risk of theft or vandalism.
The chosen policy excess, or upfront money paid when filing an insurance claim, can also impact the overall cost of coverage. The higher the excess amounts paid, the lower the premiums.
If a landlord decides to buy a more comprehensive insurance plan, then the cost of their policy will surely be higher.
Due to its higher likelihood of falling to disrepair, an older property can incur higher premiums. Older properties may also need more maintenance, which can likewise contribute to higher insurance costs. Similarly, a property that is made with more expensive materials or has more intricate design features (e.g. a conservatory or modern kitchen) will mean higher insurance premiums.
7. Claims history
A rental property with a clean history – not having any incidents requiring any insurance claims in the past – can reduce insurance costs. Installing added features like security and fire alarm systems can lessen risk and reduce the cost of premiums.
While there is no law in Australia that requires landlords to have landlord insurance, an exception is made for rental property that was purchased via mortgage. If your rental property is mortgaged, some banks or mortgage lenders will ask you to get landlord buildings insurance to reduce their financial risk.
This type of landlord insurance is meant to protect your bank or mortgage lender from any unexpected loss or damage to the mortgaged property.
Although landlord insurance is not mandatory, it is necessary because it provides the right coverage for the risks you’ll face as a someone who makes their livelihood from rental income. Here’s a useful video that outlines the importance of this type of policy and how it differs from general home insurance and content insurance:
In a nutshell, landlord insurance is important for your peace of mind. If you are new to owning and leasing a property to tenants, know that there are many risks associated with operating a rental property. This form of coverage can provide certain protections against these risks and manage the associated costs. Here are some good reasons to have once:
Whether you are earning a weekly rental income or a building sum, operating such a business can come with many unexpected expenses. For example, you can have one or several tenants who fail to pay their rent on time, a flood can damage the structure, or there may be accidental damage to your property’s fixtures and fittings. With landlord insurance, you can have the building sum insured or the weekly rent insured, so you don’t have to bear the financial burden all on your own.
If damages from flooding, theft or vandalism were insured events, having the right coverage can cushion you from the impact of these stressful financial situations. Landlord insurance also allows landlords to claim the sum insured for any malicious acts committed by unruly tenants or vandals.
With a comprehensive plan, property owners can pay for the costs of repairs or renovations without incurring any financial loss.
Another form of financial stress that this type of policy can help manage is that of defaulting tenants or other unexpected events that impact your income. Should you add coverage for rental income loss, you can file claims to cushion losses due to:
Note that the Insurance Council of Australia has mandated that rental income loss coverage is not a standard offering of landlord insurance, so make sure that your insurance provider offers this as an option.
Depending on the type of coverage a landlord purchases, a policy can cover even the cost of repairs or replacement of the property’s contents like the interiors or home equipment. This is commonly known as contents insurance.
While landlord insurance is a good risk management strategy for those who own rental properties, there are certain items that this type of policy doesn’t cover. To avoid confusion and avoid making any unwarranted claims, these aren’t covered:
These are part of a property’s everyday use and do not fall under any insurable events. Unclogging sinks or drains, mowing overgrown lawns and other activities that preserve a property’s value or livability are not unforeseen costs.
Repairs made by the landlord or tenants themselves are not covered. For repair costs to be claimed, these must be performed by paid professionals. Anyone unqualified who performs repair jobs creates risks of self-injury or damage to the property and is not insurable.
Damage to a building, home, or condominium unit due to the passage of time is also not covered. Steady, gradual degradation of a property caused by the elements is not easily measured and falls under unexpected expenses. For damage to be covered, the cause must be direct and easily determined.
Problems that the home or building had when it was built are deemed as pre-existing issues. If there is a design flaw or mistake in the construction process, then the architect or the construction company may be held liable, respectively.
Content insurance, as part of a landlord insurance policy, only covers the building’s contents or the landlord’s items in the building and not the renter’s. Tenants must purchase a separate renter’s insurance to cover their possessions against loss or damage.
6. Value loss due to market conditions
The intangible losses caused by a decrease in property values are not covered. Any investment has a built-in or inherent risk and is therefore not insurable.
Landlord insurance cannot cover risks with an embargo placed on them. An embargo is a ban or restriction on an activity or good. In this case, insurance companies can place embargoes on policies that cover imminent threats that are expected to arise.
For example, if there is a public announcement about an impending cyclone, then that event is deemed foreseeable and cannot be insured or claimed against in a new landlord insurance policy. Only those who purchased a policy well before the public cyclone announcement would be covered.
In such a case, insurance companies have the prerogative to place a temporary embargo on insurance policies covering cyclone damage to skip the high chance of paying out claims on such damage.
Landlord insurance in Australia has its share of benefits, drawbacks, and complexities to navigate. Recently, the federal government made recommendations with wide-ranging impacts for insurance companies and policyholders to mitigate the risk of natural disasters. Apart from the cost, it’s important for you to assist your client in understanding the many implications of this coverage.
Your property owner-clients will also need your expertise in choosing an insurance provider who offers the best coverage and value for protecting their investments.
Don’t forget to browse and bookmark our Best in Insurance section to know which insurance companies rank highest in providing the coverage your clients are looking for. You can also browse that section to get acquainted with the industry’s movers and shakers.
Do you have experience in claiming against your landlord insurance policy? We’d love for you to share your story in the comments.
