Calling all residential property investors… have you insured your property? You might have heard of landlord’s insurance but aren’t too sure about all the nitty gritty details. Before you jump into searching for landlord’s insurance costs and quotes, let’s break it down so you know what landlord’s insurance does and does not cover, and can better understand why, as an investor, it’s important for you to have it.
What is landlord’s insurance?
Let’s start off simply here and ensure we clarify exactly what landlord’s insurance is before jumping too far into things. Put simply, landlord’s insurance works similarly to insurance for owner-occupied homes except it’s made specifically for landlords2. As with homeowner’s insurance, the policies and level of cover differs, so it pays to check the varying policies to find the one that suits you best1.
Why is it important to have landlord’s insurance?
When you buy any type of asset that is high in value, it’s generally recommended that you insure it. The same line of thinking applies to investment properties. Owner-occupier insurance does not cover a property that is being rented out to tenants, therefore, as an investor, the only way to ensure the house is protected is by purchasing landlord’s insurance1.
When it comes to an investment property, tenants are only responsible for insuring their belongings, not the physical structure of the house – this is where it’s important to have landlord’s insurance1. Without it, any structural damage that occurs to the property and requires fixing will be paid for out of your own pocket1.
What is often included in landlord’s insurance policies?
You’ve probably already guessed that when it comes to landlord’s insurance vs homeowner’s insurance, there are quite a number of similarities in why having insurance is beneficial, but there are differences when it comes to what the policies cover.
Generally-speaking, landlord’s insurance coverage is often inclusive of building and contents cover. This means the structural features (e.g. roof, walls, floors) of your property as well as detachable items that aren’t a part of the physical building (e.g. blinds, curtains, carpets) are covered in case damage (such as from natural disasters, vandalism, theft) occurs2.
In most cases, landlord’s insurance policies cover additional construction expenses if your property is ever damaged (usually due to natural disasters) and, as a result, you need to reconstruct some sections1. Keep in mind, there are generally restrictions on how much the insurance company will cover, so it pays to read the fine print.
As having tenants leaves a house liable to accidental, or sometimes even malicious, damage occurring, it’s often common for landlord’s insurance policies to offer coverage for this. Although, some insurance providers may opt for this to be available as an optional extra purchase2.
Whichever level of landlord’s insurance coverage you choose, it’s always a good idea to ensure you check exactly what is covered by the base policy and what you may be able to add as optional extras.
What are other optional extras you can choose to add to landlord’s insurance?
Now, you’re probably wondering what type of additional extra options are available to add to your landlord’s insurance coverage – keep in mind, this differs depending on the insurance provider but there are a few that seem to be common.
One additional extra often offered for landlord’s insurance policies is loss of rent coverage. This type of cover could compensate you if you cannot receive rental income as a result of reconstruction work needing to take place at the property (e.g. after-effects of a weather event)2.
There is also usually the option to add rent default coverage to your policy. This ensures that you receive your rental payments if your tenant defaults on their payments1. However, keep in mind there are often strict rules and expectations surrounding this particular additional extra, so it pays to read the fine print to understand when you are eligible to make claims.
As you cannot predict the possibility for injury to occur to tenants or others visiting your investment property, landlord’s insurance policies often have public liability cover as an option just for these situations2. If you are faced with the situation where you may need to take legal action against your tenants, this may also be accounted for in your landlord’s insurance2.
It’s important to also keep in mind that some insurance providers will cover flooding in their base policy but others may opt to offer it as an additional extra to purchase1. Make sure you read the fine print when comparing landlord’s insurance quotes to check on this particular feature.
Remember, additional extras are not compulsory, but rather a recommendation. Whether you choose to add them or not is purely up to you.
Why does landlord’s insurance change depending on the property type?
Did you know that the type of landlord’s insurance that is appropriate for an apartment is different to that for a house? Let’s break down what this could mean when it comes to choosing the right policy for your property.
If you choose to invest in property such as a townhouse, apartment or unit which is a part of a larger building, such as you would commonly see in bigger cities like Brisbane, the body corporate (the company or person who owns the building) should have insurance that covers the entire building2. What does this mean for you as the investor and owner of the apartment? You may choose to look into a different landlord’s insurance policy that offers strata title protection, which basically protects your apartment in the instance where the body corporate has not sufficiently insured the main building2.
It’s a good idea to do some further research into landlord’s insurance policies if you are looking into purchasing an apartment or unit so you can feel rest assured your property is sufficiently covered.
Moral of the story
Regardless of which type of property you choose as your next investment, it pays to carefully look into the different landlord’s insurance policies on offer. When determining which level of cover is right for you, think about what it could mean if you had to pay for renovations or repairs out of your own pocket if you opted not to cover particular items in your insurance policy.
Queensland Country Bank can help ensure your investment property is protected with our landlord’s insurance offer from our partner, CGU Insurance.
Queensland Country Bank Limited ABN 77 087 651 027 AFS Licence No. 244533 acts under its own Australian Financial Services Licence and under an agreement with the insurer, Insurance Australia Limited ABN 11 000 016 722 AFS Licence no. 227681 trading as CGU Insurance. CGU Landlords Insurance is issued by CGU. You can get a Product Disclosure Statement (PDS) for this product from any office of Queensland Country Bank. You should consider the PDS in deciding whether to buy or hold the relevant product.
General Advice Warning: This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider the appropriateness of the information provided. In particular, you should seek independent financial advice.
Sources
1Stephen Richmond, 2022, A quick guide to landlord insurance, Investopedia, https://www.investopedia.com/articles/personal-finance/061515/quick-guide-landlord-insurance.asp
2Olivia Gee & Evlin DuBose, 2022, An essential guide to landlord insurance, Mozo, https://mozo.com.au/insurance/landlord-insurance