For most mom and pop investors the investment property is the largest single investment exposure. Landlord insurance is usually highly recommended as a must have since it provides income and capital value protection.
Covid-19 is drastically affecting the property market and we are already seeing the first order effect through drop in rents, property values and insurers are already reacting quickly to the changed tenant market condition via mostly stopped offering rental cover insurance.
We expect second order impacts to come through the balance sheet of the banks where the market is already pricing in a prolonged period of weakness via the lower bank share prices and dividends.
What is Landlord Insurance?
Insurance policies can be confusing to read and we have highlighted some of the most common forms of coverage provided under the catchall phrase landlord insurance. This is so property investors know which part of their investment is already covered in their policies and, add or subtract depending on risk tolerance or requirements.
The range of the policy coverage depends on selection or the minimum level of cover their insurer is willing to provide so it pays to review and read the policy / product disclosure statement in detail.
If a claim is made in the future it is also good to be aware of the minimum excess payment with the amount varies depending on the type of claim made.
Landlord Loss of Rent Cover
Landlords are feeling the crisis through the increasing number of tenant default as a direct result of higher job losses. Rental yield on investment property is already low as it is and many draws on the tax benefit of negative gearing. If you have landlord insurance, the risk of rent loss is partially protected via rent loss cover.
However because of the suddenness and widespread impact of the increasing tenant defaults most insurers have reduced or remove rent loss cover from residential landlord policies. Some insurers has left the market altogether and stopped providing rental property insurance.
The loss of rent cover policies is applicable for new policies as for existing insured parties on renewal, insurer is still providing this coverage. It is best to check with your insurance provider at renewal to confirm if rent loss is still covered.
What Will Landlord Insurance Cover?
Landlord insurance policy protect the landlord against numerous risks of renting out the property for income and aims to preserve the income and capital value against unforeseen events.
Rent loss cover is one of the major income protection insurance landlord can get. Building, Contents and Legal coverage provides protection to the capital values of the asset and any unforeseen liabilities.
Rent Loss Cover Time Period
This covers from the end of the eviction process to a set period after eviction depending on policy or when a new tenant is found and the legal expenses relating to the eviction process.
If the tenant had left damages it also includes the period where the required repairs are made before it can be re-tenanted or if the property is not occupied due to the current tenant denial of access after serving eviction.
Typically the cover will have an upper limit on timing such as 52 weeks as well as the weekly rental amount i.e $1,000 to $1,500 a week depending on the coverage.
Crucially a key trigger of rent loss requires a completion of the eviction process on the day after lawful eviction or possession order is completed.
FINE PRINT ALERT: It is important to know the coverage is not for a whole period the property is vacant after eviction. Typically the insurance policy will outline the exact period they will cover the rent loss such as up to 6 weeks following eviction or when it is re-tenanted BUT it is whichever comes first.
So if it takes 2 months to find a new tenant there is a 2 week shortfall and if it has word to that effect, then the rent cover is really 6 weeks after eviction rather than the whole period the property is vacant.
What Happens To The Bond If There is Rent Cover?
Any bond left by the tenants will be used first to cover the expenses and loss
Landlord Premises and Content Insurance
Landlord content coverage (fixtures and fittings) covers any malicious or intentional, accidental damage or theft caused by the tenant.
If include in the overall landlord insurance package, the policy will cover reinstate, repair or replacement of the damaged items to the original or new condition and the associated clean up costs.
It is important to note here that usually replacement value is adjusted for their age. For items which are older than 1 year the agreed value will be reduced by a set percentage, say 7.5% for each year thereafter.
This can be seen a means of depreciating the value of the item such as carpet or flooring adjusted to the time the insured event happen.
List of Items Typically Covered By Content Insurance
The key theme of landlord content insurance from the list of items covered is that these are items that are owned by the landlord not the tenant.
- Built in cupboards, furnitures, kitchen appliances
- Blinds, light fittings and curtains
- Floor coverage such as carpet or timber floor
- In apartments, the portion of the strata title the landlord owns such as internal walls and ceiling paints.
- Any other items owned by the landlord not the tenant
The tenant will need to have their own content insurance policy to cover accidental damages.
Damage caused by pets can form as part of a component of content insurance or as a separate coverage landlord insurance for pets.
Typically it does not include the loss of pets, trees or detached items like bikes or caravans, electronics etc.
Landlord Building Insurance Cover
The third major coverage under landlord insurance is building or premises cover from natural disasters (fire and flood etc). Similar to the differences in depreciation between buildings and contents. The insurance policies also splits the coverage between the contents and the building itself.
For apartments, usually the insurance of the building is partially covered under the strata or body corporate costs. But it is important to note how much insurance value is taken out so there is no shortfall between the insured value and the market value of the property.
Landlord premises cover in this instance for apartment owners will be the internal portion of the apartment such as bathroom tiles or walls.
If the insured property is a house then the building coverage will cover the house and seperate to the contents within the house.
Taking out landlord building insurance cover means that in event of a natural disaster the insurance policy will repair or replace your premises to a condition substantially the same as well as the reasonable costs of its repair or replacement.
Temporary Accomodation and Inflation Adjustment for Building Insurance
There is usually an allowance where the insurer will pay up to a certain amount for temporary accomodation if the property is being repaired or rebuilt. The total value is adjusted for inflation annually
Landlord Legal Liability Cover (Public Liability Cover)
The legal liability cover provides protection against claims for compensation or expenses which the landlord becomes liable for as result of death, injury and loss / damage to the other people’s property as result of ownership of the property.
This is basically the coverage to prevent lawsuits from your tenants as result of the perceived damage the landlord could have caused such as a damaged footpath which caused injury or trees on the premises not being property maintained and it fell on someone.
Is There Landlord Insurance for Commercial Properties?
Landlord insurance is only available for residential real estate and on an individual basis. So if you have multiple investment properties, while they will be covered under the same policy, each property will be treated on a standalone basis.
The only insurance available for commercial real estate is public liability insurance and public liability cover from the list above.
What Information Does the Insurance Company Need To Take Out Landlord Insurance?
There are a standard set of question the insurance broker or company require to price the right policy.
Type of Cover Required
- Is it a Buildings & Content Cover. They can also cover just the building itself or the content only in the house only as well.
- Is there a first or second mortgage on the property
- Is it currently rent / unoccupied and if it was previously rented, how many tenants has the property had in the last 12 months.
- Will the investment property be managed by real estate agent or self managed
General Property Information
- A written or oral rental agreement in place?
- Expected income of the property
- Is there any business activity done from the property
- Different rates will apply to type of property like houses, apartment, townhouse or terraces house etc
- Is there a body corporate or strata titled
- Fire alarm or security status
- How much to rebuild the property at today’s price (or market value)
- Any break in or thefts in the last 5 years
- Have the buyer made any claims in the last 5 years
Property material
- What type of material is the walls made up of?
- What type of material is the roof made up of?
- If there are asbestos then this constitute a higher risk policy
- The year the building was built
Where To Buy Landlord Insurance
These policies can be bought either directly from the insurer or through an insurance broker (similar to lender mortgage insurance). This is called the insurance distribution channel and it is really dependent on how the insurer want to sell their policy such as online only or through brokers only. So it pays to shop around to find the best policy as it is unlikely one place will have all the best policies.
List of the Best Landlord Insurance Companies
There are a number of companies selling landlord insurance policy. Most of these are household names and you should know that when you buy a policy from Woolworths or Australia Post, they are the distributor to underlying policy which is underwritten by a reputable insurance company (such as Allianz). They are simply leveraging their household name recognition to sell policies.
- Australia Post
- Budget Direct
- CHU
- Huddle
- ING
- Real Insurance
- Virgin Money
- Woolworths
- Coles
- EBM
- Terri Scheer
- Allianz
- RACV
- NRMA
- ANZ
- Commonwealth Bank
- Westpac
- Youi
- QBE
- SGUA
- AAMI
- Travelers / Citibank