Under cover: How has COVID-19 changed landlord insurance?

Landlords looking to insure their investment properties may have noticed a few changes to the landlord insurance marketplace recently. We take a look at what changes have occurred and what they could mean for insuring rental properties.

The COVID-19 pandemic has hit the economy hard, causing a number of financial service providers to change the way they do business. Companies providing landlord insurance products are among those who have altered their product range.

Canstar’s Ratings Manager Joshua Sale said the insurance landscape had been reshaped by the fallout of the pandemic, particularly when it came to landlords who wanted insurance to cover risks such as unpaid rent. This type of cover is often called tenant default cover.

“Most landlords generally look for cover for tenant-related risks, such as loss of rental income and damage caused by tenants,” Mr Sale said.

“After the National Cabinet announced a temporary six-month freeze on evictions (in March, 2020), now implemented in all states and territories, the majority of insurers have stopped covering tenant-related risks on new policies until further notice.

“New policies can still be taken out, but make sure you understand what will and won’t be covered.”

The Insurance Council of Australia (ICA) states that tenant default cover was not always included in a landlord insurance policy, even before the COVID-19 pandemic.

“New landlord insurance policies are available from some insurers with an adjustment to the Tenant Default component of the policy,” the ICA stated, after the eviction freeze announcement.

“These policy adjustments are occurring due to the financial uncertainty created by the economic downturn, and the various government announcements about tenant protection measures and the impact on landlords, tenants and insurers.”

Canstar investigations showed that the extent of this coverage removal differed between insurers. For example, some insurers were still offering policies with cover for theft or burglary by a tenant, while others listed this as now being excluded. However, a large portion of insurers state on their websites that “tenant default” – also called “rent default” or “loss of rent” cover depending on the insurer – would no longer be offered to new customers. It could therefore be a wise idea to find out exactly what an insurer is willing to cover prior to entering into an insurance contract.

Ordinarily, tenant default cover could include events such as:

  • Missed rent payments
  • Loss of income due to the property being vacant
  • Legal costs involved with pursuing a tenant for rent

Some companies are also removing cover relating to “tenant damage”, which could include such things as:

  • Accidental damage by a tenant or their guests, such as a broken wooden door caused during a fall
  • Malicious damage by a tenant or a guest, such as “trashing” a property, graffiti and other deliberate acts of vandalism
  • Removing items (such as furniture or rubbish) left by former tenants

Mr Sale said landlords with existing policies should still expect to be covered for any tenant risks listed in their Product Disclosure Statement (PDS), but that it was important to check with your insurer.

“If you don’t have cover already, it may be some time before new policies (with tenant-related risk cover) become available,” he said.

What insurance can landlords obtain now?

Mr Sale said it was still possible for landlords to obtain building and contents insurance for an investment property.

What is building insurance?

Building insurance covers the physical structure of an investment property – the house/unit and outbuildings such as garages and sheds. It also typically covers permanent fixtures on the property like fences, swimming pools and built-in air conditioners and dishwashers.

What is contents insurance?

Contents insurance covers possessions within the home. While a landlord is not responsible for a tenant’s possessions, contents insurance could cover items the landlord owns, such as window coverings.

Strata-titled buildings and landlord insurance

Typically, the body corporate of a strata-title complex (such as an apartment block) would have responsibility for the building-only insurance, to which all property owners at the complex would contribute via their body corporate levies. In this case, investors would typically still require a “contents” type of policy if they wanted to cover damage to items and areas that the body corporate insurance would not cover. Examples of this could be adaptations to the exterior of a property that the owner has made to make it more accessible, such as ramps or railings, or improvements to an outdoor area within the bounds of the unit’s lot, such as the addition of a shade structure.

Does a landlord need both building and contents insurance?

“Units may already have associated building insurance handled via the body corporate,” Mr Sale said. “However, contents insurance would generally be required to cover items like carpets, blinds and furniture, particularly if the property is furnished.

“Houses would require both the building and contents to be covered if the landlord wanted as much protection as possible.”

Policies are typically offered as either building only, contents only or building and contents policies. There could also be extra “add-ons” to these policies, that could cover a landlord for accidental damage for certain items, motor burnout for things such as water pumps, and intentional damage by tenants.

What should a landlord do if they were worried about their tenant paying rent?

The ICA states “state and territory governments are encouraging landlords and tenants to negotiate on rent reductions or deferrals if the tenant’s capacity to pay their full rental obligations are affected by COVID-19”.

“These measures are intended to help tenants remain in their homes, rather than be evicted for non-payment or part-payment of their rent. The building, contents and liability protection provided by landlords insurance is not affected when the landlord and tenant agree on rent reductions or deferrals.

“Insurers are treating landlord claims on an individual basis. In cases where a residential tenant is suffering genuine financial hardship as a direct result of COVID-19 and cannot fulfil their rental obligations, insurers will not pursue the tenant for unpaid rent.”

Mr Sale said support could be available for landlords who were suffering from the impacts of COVID-19, such as land tax relief in Queensland, New South Wales, Victoria, and the Australian Capital Territory. Landlords should check with their state or territory government to find out what assistance they may be eligible for.

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This article was reviewed by our Sub-editor Tom Letts before it was published as part of our fact-checking process.

Title image: seiki14 (Shutterstock)

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