These days there is insurance for everything – houses, cars, pets, medical, travel… Merv Hughes even insured his moustache for roughly $370,000 during his cricketing days. Despite it being so widely available, insurance is still one of those things that some people mistakenly think isn’t worth it. If you are one of those people, we are here to change your mind…
If managed correctly, an investment property can prove to be a financial dream. However, renting out a property comes with a bunch of risks. Without the right insurance in place, that financial dream can quickly turn into a financial nightmare.
A specialist landlord insurance policy is designed to cover the unique risks that investment properties may face. Not sold on the idea? Here are five reasons why a specialist landlord insurance policy is a valuable investment…
Unlike a typical home and contents policy, a landlord insurance policy offers protection for tenant-related loss and damage. This means if a tenant defaults on rent or causes damage to the property, landlords may be able to recoup costs through their insurance policy.
Case in point: A tenant suffers a job loss and stops paying rent for six weeks before unexpectedly moving out of the property. Upon inspection, it was discovered there was malicious damage to the walls, including two large holes in the hallway. Check out the below table to find out what typically is and isn’t covered in different policies…
|Landlord insurance policy||Basic (entry-level) home and contents policy|
|Rent default (up to the limits stipulated)||Covered||Not covered|
|Loss of rent during repairs (up to the limits stipulated)||Covered||Not covered|
|Malicious damage (up to the limits stipulated)||Covered||Not covered|
The above example and comparison are to be used as a guide only and is a representation of our understanding of general policy features and products. Please note, the current COVID-19 pandemic has impacted the offering of most landlord insurance providers and protection for some tenant-related risks is not available at present. Always read the Product Disclosure Statement and use that information to decide what cover is right for you.
Weather – it is just so unpredictable
Damage caused by weather events is a common property insurance claim, and by taking out cover, landlords can safeguard their investment against a range of natural disasters and risks including storms, hail, floods, cyclones and bushfires.
DID YOU KNOW??… the recent 2021 flooding in New South Wales and South-East Queensland has (so far) led to more than 42,000 claims being submitted, worth about $624 million (according to the Insurance Council of Australia). If those landlords did not have cover, they would have had to pay the $624 million damage bill out of their own pocket.
As wild weather conditions are expected to continue, bringing cyclones, severe storms and bushfires, property owners should consider the risk of being financially exposed to substantial damage or total losses by being uninsured.
Tenants – they are also unpredictable
You cannot control a tenant’s job loss, a relationship breakdown, or their health. Around half the claims EBM RentCover receives against landlord insurance policies concern a tenant-related matter like loss of rent, damage and theft by the tenant. Investors who have landlord insurance will usually be protected for these risks.
Isn’t the bond enough to cover tenant related risks? This is a common myth. In many cases the bond that has been collected will not be enough to cover the expenses if a tenant refuses to pay rent, damages the rental property and fails to make good on their obligation to repair the damage, or steals contents from the premises. This leaves the landlord to foot the bill and then chase the tenant for reimbursement through the courts, which can be an expensive proposition.
Cover up to tens of millions of dollars
A key feature of landlord insurance policies is legal liability (also known as ‘public liability’ or ‘liability to others’) and cover limits are usually in the tens of millions of dollars.
Landlords have a responsibility to provide a safe and liveable property for tenants and anyone else who visits the premises. This means they must take care to avoid foreseeable harm to tenants or other visitors. Harm could be a physical injury or damage to the person’s property. If the landlord is negligent in this responsibility and someone suffers a loss as a result, the landlord will usually be held liable and may be required to pay compensation.
Case in point: A Melbourne tenant received $300,000 in compensation from his landlord after he sustained serious injuries when the balustrade of a balcony collapsed at his rented property. The tenant sued the landlord, and it was found that the balcony had not been properly maintained or inspected. The tenant’s lawyer alleged that “the landlord had been warned by previous tenants that the timber of the balcony was rotting, however the landlord failed to ensure that it was adequately replaced”. The judge concurred and awarded the tenant compensation as the landlord was aware of the hazard but failed to take action to rectify it.
Legal liability provisions in a policy cover the legal costs and any payouts for which the policyholder would be responsible if they are found to be legally liable. Without insurance, the landlord has no cover for liability incidents that occur at the rental and would face any legal and compensation bills on their own. Food for thought: To date, the highest personal injury claim in Australia for one person was an eye-watering $19 million… and half of that was legal costs.
Legal costs are covered
Speaking of legal costs…. This cover is important for landlords who want to always keep control of their property. While we hope your tenancy is a breeze, if something does go wrong, there can be lengthy and costly legal disputes.
When a tenant does the wrong thing, you may need to go to court to sort out disagreements. If this happens in relation to loss of rent (EBM RentCover only offers this protection in relation to loss of rent), landlords can benefit from having cover that extends to legal expenses.
The bottom line – as a landlord, it is important to protect your asset and the income you are set to derive. A specialist landlord insurance policy is an important part of an investment strategy.