A leading landlord insurer has confirmed they will not cover any reductions to rental payments negotiated by the property owner and the tenant amid the COVID-19 outbreak.

Furthermore, Terri Scheer has confirmed they will no longer take on new customers during the pandemic.

“Given the uncertainty around the COVID-19 situation we have temporarily stopped selling new landlord insurance. Our focus is on supporting our existing customers through this difficult time,” said Carolyn Parrella, insurance executive manager at Terri Sheer.

She also said insurers do not consider rent reductions a default by a tenant.

"Landlords who choose to negotiate lower rents with tenants will remain covered under their existing policy to the new rental amount. So, if a tenant stops paying rent at the renegotiated amount and vacates the property, there may be a valid trigger for a claim," she told Your Investment Property.

State governments have rolled out several policies in response to the pandemic, including a ban on evictions and financial packages to help tenants keep a roof above their heads. Residential landlords were also encouraged to negotiate with their tenants for any rent deferral or reductions.

Parrella said while the eviction moratorium is in effect, any unpaid rent would continue to accrue until the tenant leaves the property. In such cases, landlord can lodge a claim.

"We won't require property managers to issue a notice of eviction during the moratorium period for a later claim to be valid, but this is limited to the period of the moratorium," she said.

Campbell Fuller, head of communications and media relations at Insurance Council of Australia, said tenants who are struggling to pay for their rents could seek government support.

"Governments expect that tenants should continue to pay some rent where they have funds available, especially when they are receiving taxpayer-funded support such as JobKeeper, JobSeeker or rental assistance," he told Insurance Business Australia.

Fuller said in cases where tenants are unable to meet their obligation, insurers will not pursue them for unpaid rent. However, he said landlords must know that not all policies cover loss of rent.

"Landlord insurance protects the investment that a landlord has made in a rental property. Cover can be purchased for the building, contents or rental income, or any combination of these. Cover for loss of rent is not always included in a landlord policy and may be added as required," he said.