Landlord’s insurance is one of the most important purchases a property investor can make. For an outlay of a few hundred dollars a year, you can be covered for not only damage to buildings and contents, but also for rental default and damage by tenants.
However, as some investors have found out to their cost due to the Queensland floods, it pays to make sure you get the right coverage for your property – otherwise you could be left with an expensive repair bill. So, we’ve compared and contrasted coverage and price to bring you Australia’s best landlord insurance policies, and highlighted the key elements that you shouldn’t go without.
Your insurance shopping list
What should you be looking for when selecting landlord insurance?
The key with buying insurance is making sure that you get adequate coverage for your situation. The cost of landlord insurance can vary wildly, with some products costing less than half that of others; however, cover and service can vary significantly. Check how and when you can claim: most insurers now operate 24-hour claim lines, find out what you need to provide in order to claim, and what happens in worst-case scenarios (eg if receipts are destroyed in a fire).
In terms of coverage, make sure you’re covered for acts of nature. As has been highlighted by the recent spate of natural disasters that have afflicted Australia, New Zealand and Japan, these can strike at any time and can wreak wholesale devastation. Key events to check coverage examine closely are:
- Storm (including damage from lightning strike)
- Flood – look closely at the ‘type of flood’ covered. Some policies may not cover flooding from rivers bursting their banks, for example
- Tsunami and ‘ocean movements’
- Civil unrest and rioting
If you’re in an area that could be prone to any of these – even if it’s a relatively remote risk – then not taking adequate cover is a big risk.
Second, check what your buildings cover will actually pay for. A buildings policy should protect the structure of your property, including:
- Pipes and cables
- Fixed appliances
- Gas or plumbing systems
- Fixtures and fittings, (except for carpets loose floor coverings, curtains and internal blinds)
- Exterior blinds and awnings
- Some external structures.
Building insurance should also cover you for the complete or partial destruction of the property, and typically covers loss of rent while the property is uninhabitable. You should also be covered for damage caused by the tenant and/or guests under a landlord’s buildings policy, although some providers may charge a premium for this.
It’s a little more complicated when it comes to units. As the fabric of the building is typically insured by a body corporate, you are forced to rely on their insurance for damage to structures. However, you can purchase specialist insurance, usually called ‘strata title protection’ or similar, which will cover you in the event the body corporate is underinsured.
You should also be clear on where you stand on contents, even if you’re not providing a furnished property. Contents insurance covers items that are not viewed as part of the structure of the property, such as:
- Household goods
- Internal blinds
- Loose floor coverings
- Light fittings which are not permanently fixed to the buildings
- Domestic appliances and utensils.
As a rule, it will only covers items owned by the landlord, and not property owned by the tenant. You will typically be covered for damage to your property caused by the tenant and/or guests, although some providers may charge a premium for this. Contents insurance for units is usually extended to cover fixtures and fittings usually covered by buildings insurance, as buildings insurance does not usually apply to units. White goods are often subject to claim limits, as are contents that are kept outside, so it’s worth ‘knowing your limits’ just in case.
This is probably the most important aspect of landlord’s insurance, and protects you against loss of rent. Not all policies cover all eventualities, but most should protect you against loss of rent due to:
- Tenant eviction due to a court order
- Tenants obtaining a hardship order
- Unexpected death of tenant
Many of these policies only kick in after four weeks of loss, or will charge an excess equivalent to four weeks’ deposit – so, make sure you get a full four weeks’ rent as bond. Claim limits also varies from insurer to insurer – some will pay 12 weeks’ rent, others up to a full year, others up to a fixed monetary amount – so you should make sure that you’ve got enough coverage so that you’re not out of pocket under various scenarios – for example, if the property is trashed and you have to renovate.
Extras and incentives
Some policies also offer extra coverage in addition to the ‘core’ benefits listed above. Legal liability cover is usually included in landlord insurance, to protect against the possibility of injury or death due to a landlord’s negligence. Other ‘extra’ elements of policies may include worker’s compensation (WA only), automatic indexation of insured value, fusion or burnout of appliances that use an electric motor, replacement of keys and locks and tax audit insurance.
Check out what incentives are offered by individual insurers, too – most insurers offer discounts if you also have car, health or home insurance with them or if you’re insuring more than one rental property. A number of insurers will also offer lower rates for the over-50s, and banks may give you a discount if you’ve got mortgages and/or accounts with them. Don’t be afraid to negotiate on the price or product features too – you may not be able to get a discount but you may be able to negotiate higher claim limits or a lower excess, for example.
Making sure you’ve got the right level of cover is paramount: the last thing you need is to be lying awake at night worrying about whether your policy will pay out – especially if the worst has already happened. You should never automatically assume you’ll be covered, and if in doubt, it’s better to be overinsured than underinsured. After all, while you may save a few hundred dollars’ a year by plumping for what seems to be the cheaper policy, that saving could be wiped out many times over if you end up having to pay out for expensive repairs that aren’t covered.