Landlord Insurance

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As a landlord, your rental property is one of the most valuable assets you own. It’s important to protect it adequately.

Landlord insurance can help protect this asset and provides personal injury and property liability protection. Many firms have, however, reduced coverage for rental default as a result of COVID-19.

Read more about landlord insurance in this guide for new landlords!

What is Landlord Insurance?

Landlord insurance consists of two components. The first protects your rental property just as your own home buildings insurance does. This policy compensates for theft, fire or flooding and landlord liability coverage if someone is injured at the rental unit.

The other component of landlord insurance is in relation to tenants. This covers, depending on the policy, malicious damage caused by the tenant or their pet. Certain policies will also cover loss of income in case the tenant defaults on the rent, absconds or needs to be evicted. Landlord insurance policies may cover legal fees, costs of changing the locks and even tax audit fees.

Like all other insurance policies, there is a huge variation in the cover. It is wise to decide on what cover you require before comparing and read the PDS carefully.

Why Is Landlord Insurance Important?

All insurance companies aim to make a profit by paying out less in claims than it collects in premiums. This makes insurance policies a losing bet for consumers. And (hopefully) a boring waste of money!

But consumers who cannot yet afford to self insure need to protect themselves from financial catastrophes.

If your investment property burned to the ground, or a visitor suffered a serious injury on your property, the event may cause financial ruin. Changing the locks after a tenant was evicted? Annoying but hopefully not financially catastrophic if you are a property investor.

You should have financial buffers and an emergency fund.

The only reason you should take on the losing bet of an insurance policy is to insure against disaster. So when looking at policy inclusions, focus on ensuring you have disaster covered. It’s easy to get distracted by bonus inclusions that you are unlikely to recieve. Don’t pay extra for insurance you don’t really need.

How Does Landlord Insurance Work?

Landlord insurance works by providing coverage for the non-owner occupied residential rental property (i.e., landlord). It also provides liability coverage for bodily injury or property damage to others that arise out of your rental activities.

The landlord pays an annual or monthly premium. Most of the time, they won’t need to claim. If a claim is required, it’s time to call the insurance company. Only then do you find out how much of a battle it’s going to be to actually get the cash!

What Is An Excess (deductible)?

An excess is a dollar amount you pay on an insurance claim before the insurer pays anything toward the loss. For example: If you have a $500 excess, you would pay the first $500 for repairs yourself.

Increasing the excess will often reduce the cost of a policy. Again, the majority of the time you (hopefully) won’t need to claim, whereas you will always need to pay the insurance premium. It is generally more cost-effective to accept a higher excess for a lower premium

How Much Coverage Is Enough?

In general, landlord insurance covers replacement cost value or actual cash value (depreciated) for your building plus any additional living expenses due to damage from an insured event such as fire or storm.

It is important to consider all risks involved with owning rental property when purchasing landlord insurance because each landlord may have different coverage needs based on their situation and the type of property they own.

Terry Scheer was recommended to me. I have never had to claim (touch wood!) They cover $2 million in liability.

Underinsurance of homes is a massive issue, revealed every time Australia has a natural disaster.

The most accurate way to estimate the rebuild cost of a home is to order a quantity surveyor’s report. If you are planning to order a depreciation report for your investment property, enquire about a replacement property valuation for insurance purposes.

Alternately, insurance companies have calculators to help you work out the insurable value of a home on their websites. Use multiple sources and take care to get the estimate as accurate as possible.

Landlord Insurance Policy Features To Consider:

  • Excess options
  • Does the insurance company cover replacement Cost or Actual Cash Value of Building and Contents?
  • What Is Covered? (i.e., what is NOT covered?)  
  • Limits Of Liability Coverage For Bodily Injury Or Damage Claims/Lawsuits
  • Malicious damage by tenant
  • Damage caused by pets (do the insurance need to know about pets prior?)
  • How Long Does Landlord Insurance Last Before It Expires / Becomes Invalid
  • Are There Any Exclusions (“acts of God exclusion” is pretty subjective!)
  • Online reviews on claim process
  • Rental cover in case of tenant default, absconsion or (hate to imagine) death*
  • Eviction costs

*Following COVID-19, many firms have cut loss of income cover. Landlord insurers stopped offering new policies for a while as their costs blew out with unexpected claims. Multiple insurers do offer rental default cover again if this is important to you.

How To Get The Lowest Price On Your Landlord Insurance?

It is important to focus on the quality of the cover before trying to find the cheapest option. Cheap insurance that doesn’t cover financially catastrophic events is a waste of money.

The cost of a policy will depend on the size, value and makeup of the building, its location, policy inclusions and excess. It is usually more expensive than your principal place of residence insurance policy.

Shop around and compare landlord insurance quotes of appropriate policies. There are many online sites that offer landlord insurance comparison shopping. Make a list of available policies from different companies with all their pricing information, policy features and exclusions.

Another option is to ask your property manager if they have a recommendation.

Can You Make A Claim On Your Landlord Insurance?

Landlords can make landlord insurance claims for covered losses resulting from an insured event.

If you have to make a landlord claim it is important to follow all instructions given to you by your agent and landlord insurer regarding filing landlord insurance claims properly.  Speak to your insurer before commencing repairs if possible.

It’s also good practice to maintain detailed records of any conversations with agents about coverage information related to making claims, sending proof of loss statements etc. Keep copies of all documents filed during the process including receipts for repairs/replacement items purchased.

Landlord insurance is an important defensive tool to limit your risk in property investing. Make sure your policy covers causes of financial catastrophe, and then minimize cost.

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Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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