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landlord insurance

Is Landlord Insurance worth it?

Today we are looking at the topic of Landlord insurance – why it is important, why more than 80% of investors who use a Property Manager have it, and what the considerations around it are that you need to know

Landlord insurance is a very sensible investment for property investors, and if you check the options carefully, and choose one that covers the key areas that you need, it gives landlords peace of mind in a number of circumstances.

So what is Landlord Insurance and when is it used?

About 45% of claims in Australia on Landlord Insurance are for loss of rent. If a tenant doesn’t pay their rent, and leaves the property, this insurance will usually cover the majority of your losses if you follow the right process.

Sadly, very often in the journey of a property investor, despite their very best preparations, they will find that tenants fall behind on their rent, or stop paying it all-together. This can happen for a number of reasons – perhaps the tenant loses their job suddenly, or has other personal issues whereby they can’t afford to pay it. Some tenants of course, who seem like good, ethical people, give landlords the run-around, are regularly late with their rent, and fall behind to a point where they cannot make it up. Others make their own plans to leave and skip town – and very often the bond received won’t cover the losses to the owner. Landlord insurance can really help in this type of scenario.

Landlord insurance also usually covers extreme weather events where the property is damaged, and often damage or losses incurred by the tenant. If a tenant does a runner, and steals or breaks property, very rarely will the bond be significant enough to cover this eventuality.

Sadly with many self-managed properties, owners believe they can keep a close eye on their tenants, and don’t buy landlord insurance

Today, only about 55% of landlords self-managing a property have landlord insurance, believing they can either use the bond to recover losses or take a legal route to recoup their losses. This is very risky, as legal action is often very expensive and drawn-out, and the costs need to be borne by the landlord looking to sue for those losses. If the tenant is not in a financial position to cover these costs, then landlords can be left to cover it themselves after a long and arduous process. Therefore legal costs and liability are also an important inclusion to look for in landlord insurance. Liability insurance should cover the landlord if the tenant has an accident on the property and aims to sue the landlord. And indeed the legal costs if a landlord has to pursue an eviction.

Many landlords rely on the cash-flow of rent for their expenses and income, and so being left short can leave them in a very difficult position

Loss of income in this case can be a significant burden, and so the re-assurance of the right insurance in these cases is absolutely worth it.

The other benefit is that that landlord insurance is an expense which is often tax deductible for investors – and given it is a relatively low cost consideration, is a no brainer as far as we are concerned.

Investors have to be very careful to check the policy details and the inclusions therein

Every policy has its own terms and fine print – fortunately with the multitude of comparison and review sites, it is relatively easy to compare the different options and inclusions available to you. You do need to be careful when choosing the right insurance for you though, as some won’t include damage done by pets for example, or a pre-determined period of rent lost.

Also, it is critical that the investor purchases the insurance before there are any issues – so when you start to advertise, and certainly before a new tenant moves you need to purchase it. On top of this, you have the responsibility of ensuring you stick to the letter of the law, sending the right notices in the right way at the right time, to give your tenants the correct notice in regards to any late rent or other issues you may be facing. A good property manager will know what is required here – but too often self-managed investments can get this wrong, and this can invalidate their claim.

Keep in mind that building insurance will not cover these same issues

In a unit, the body corporate is responsible for the building insurance, and that does not cover anything inside your unit. With a house, you need to cover the land, as well as the building and contents and hence the cost of landlord insurance is considerably more.  Of course picking a good tenant mitigates some risk, but nothing guarantees the calibre of the person renting – including their past history as good tenants. If you have a property in a high risk zone – for example, areas prone to storms, flood or fire – these unpredictable natural events can destroy a property, and without insurance an investor can be left high and dry.

Given all of these potentialities, and the relatively low cost of landlord insurance, so long as you check the details of the cover properly, and stick to the rules of the law around how you manage difficult tenants, then landlord insurance is obviously a good investment.

One of the main benefits of landlord insurance of course is peace of mind. As an investor, you don’t want to carry the burden of the, ‘what if’s’ on your shoulders

Sadly, on too many occasions, uninsured investors are left with big bills, and a loss of income that can be a major setback and cause tremendous grief and other issues. Landlord insurance applies for any rental property, and is absolutely worth it as an investor – just check the fine print and be sure to get the right coverage for your needs.

This is general information only – it is important to get advice on the right insurance for you from a licensed insurance broker.

Talk with us about your next investment and we can point you in the right direction, and can guide you through any questions you may have.

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