Landlord Insurance In 2017: What Investors Should Know

Looking to rent your investment property out? Then you might want to know about the following trends and insights for landlord insurance, according to Canstar Research.

Renting out a property to tenants can be a sound investment strategy, and landlord insurance is usually considered essential for property investors in order to provide financial security against the risk of leasing. But it is not without its costs.

There are certain things you might want to be aware of when taking out landlord insurance, like:

  • Premiums
  • Changes in rental prices across Australia
  • Common claims made by Australian landlords

This guide will go over each of these topics, looking at what they are now and how they’ve changed.

Shifting rental prices in Australia

Several months ago, Canstar wrote this article discussing the latest rental price movements across Australia, based on Domain’s State of the Market Report for March 2017.

This report shows that rental markets in Canberra, Hobart, Sydney, and Melbourne have recorded major yearly increases, which is bad news for those who can’t afford to buy, but good news for those who own an investment property, which, if you’re reading this article, might just be you.

The tables below show the average weekly rent for houses and units.

Rental prices for houses

2017 March Quarter Median Weekly Rent – Houses
Capital Rent ($/week) Quarterly Change Yearly Change
Sydney $550 1.9% 4.8%
Darwin $550 0% -1.8%
Canberra $500 0% 7.5%
Melbourne $420 2.4% 5.0%
Brisbane $405 1.3% -1.2%
Hobart $370 5.7% 5.7%
Perth $370 0% -7.5%
Adelaide $360 0% 0%

Source: Domain

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Rental prices for units

2017 March Quarter Median Weekly Rent – Units
Capital Rent ($/week) Quarterly Change Yearly Change
Sydney $530 1.9% 1.9%
Darwin $430 -2.3% -4.4%
Canberra $300 1.8% 8.2%
Melbourne $395 3.9% 3.9%
Brisbane $380 1.3% -0%
Hobart $300 0% 5.3%
Perth $300 0% -14.3%
Adelaide $295 1.7% 1.7%

Source: Domain

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Price of landlord insurance

Premiums for other products such as life insurance and health insurance have risen recently, and it appears that landlord insurance is no different. Based on data from Canstar Research, the average landlord insurance premium for building and contents cover from the providers we rated in our 2017 research has increased in almost every state.

Landlord insurance premiums vary across all states and territories, however, as does the percentage of rental income they account for. Premiums in one state might be significantly cheaper than another, so Canstar has compared these premiums – as well as median rental income and the percentage of rental income a landlord insurance policy will cost – across 7 states and regions.

These figures for both building and contents cover for houses and contents cover for units are based on the year-on-year premiums offered by the 4 biggest landlord insurance providers – NRMA (to represent IAG as IAG do not offer landlord cover directly to the market), Allianz, QBE, and Suncorp – which cover about 90% of the market.  This calculation is based on APRA General Insurance Institutional-Level Statistics, issued in November 2016.

The following table shows how premiums have changed for landlord insurance over the past 12 months, based on the aforementioned 4 providers.

Average Premiums – 2016 vs 2017

State 2016 Average market Premium 2017 Average market Premium % Change in Market Premiums
NSW $1,100.24 $1,272.45 16%
VIC $810.37 $984.14 21%
QLD (excluding North QLD) $1,176.28 $1,413.68 20%
NQLD $3,898.63 $3,757.39 -4%
WA $776.47 $967.43 25%
SA $749.92 $903.29 20%
TAS $861.93 $1,032.17 20%
NSW $391.41 $411.24 5%
VIC $291.44 $342.71 18%
QLD (excluding North QLD) $392.72 $451.73 15%
NQLD $799.45 $896.23 12%
WA $255.79 $276.46 8%
SA $264.06 $314.20 19%
TAS $288.47 $339.23 18%

Source: Canstar. The market is represented by Allianz, IAG, NRMA (to represent IAG), QBE, and Suncorp, which collectively make up 90% of the general insurance market share in Australia. Premiums are annual premiums based on $450,000 building cover and $45,000 contents cover for a house, and $45,000 contents cover for a unit, with a $500 excess at all addresses considered within each state/region included in the Canstar Landlord Insurance Star Ratings and Awards in 2016 and 2017.

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As you can see in the table above, premiums across every region in both building and contents insurance for houses and contents insurance for units have increased in the last 12 months. The exception to this is North Queensland building and contents cover, where premiums have fallen by 4%. This is mainly due to the fact that premiums there are already sky-high due to the prevailing threat of tropical cyclones. 

For investment houses, Canstar data shows that the cost of building and contents cover has risen by an average of 16% in New South Wales, 21% in Victoria and 25% in Western Australia, reflecting increased house prices and continually increasing rent.

The increase in premiums for contents only cover generally hasn’t been as high, but there has still been a sizeable increase in every region we consider for our ratings. With the exception of New South Wales and Western Australia, average premiums have risen by 10% or more in each area, with South Australia recording the biggest increase at 19%.

In the market for Landlord insurance? The below comparison table features current insurance products on the market for house properties sorted by our star rating (Highest-lowest) located in NSW.


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The most common landlord insurance claims

Landlord insurance is vital to protect both your investment and the rental income you receive from it. According to 2016’s Canstar award-winning landlord insurance provider Terri Scheer, as well as a variety of other sources, such as, the most common landlord insurance claims are as follows:

  1. Loss of rental income

According to Terri Scheer Insurance, the loss of rental income due to the behaviour of tenants is the number 1 claim made by landlords, accounting for 53% of claims in 2015.

Carolyn Parrella, Executive Manager of Terri Scheer Insurance, says that “more than half of claims made by landlords were caused by absconding or defaulting tenants. A tenant who falls behind in their rent poses one of the greatest financial risks to landlords. Arrears can be a very long and costly process to resolve”.

Even the best tenants imaginable can suddenly stop paying rent for a variety of reasons, like financial difficulties they’re experiencing or being diagnosed with an illness. Whether their failure to pay rent is intentional or unintentional, not receiving rent from your tenants can leave you short on your investment.

Any decent landlord insurance policy should cover you for rental income loss in a range of circumstances, and Canstar does not rate products unless they cover loss of rent due to tenant default. To help identify a potentially bad tenant, make sure you read our article on how to find a good tenant for your investment property.

  1. Malicious and accidental damage

The second most common landlord insurance claim is for malicious and accidental damage. It can be extremely expensive to repair damage to your property – either accidental or otherwise – and malicious or accidental damage cover can protect you from a host of common accidents.

“Malicious damage covers everything from holes punched in walls and doors that have been kicked in, through to intentional damage to carpets and floors,” Parrella said. “Tenants who damage a rental property can leave landlords with large cleanup bills and significant replacement costs.”

As with the loss of rental income, a product must offer cover for malicious damage or vandalism by tenants or their guests to be eligible for Canstar’s Landlord Insurance Award. The specifics can vary, but you can find the right cover for you by comparing various products on the market. Canstar can help you with this.

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  1. Water damage

The third most popular claim is water damage. It is important to know that water damage is different to flood damage or storm damage;  it mainly covers water damage from appliances and fittings, such as leaks, burst pipes, and sinks, etc. Many home & contents insurance providers exclude water damage due to excessive damage caused by tenants, so it’s important to shop around to find a landlord insurance policy that does cover this type of water damage.

  1. The death of a tenant

Unfortunately, the death of a tenant is not all that uncommon in Australia, as it is the fourth most common claim by landlords. While it is important to adopt a compassionate approach when dealing with a deceased tenant – which includes co-operating with police and speaking to their friends and family –  you still need to make money on your investment.

That’s why a good landlord insurance policy will cover you for the loss of rent you would have received if the tenant is the sole person on the lease.

  1. Storm damage (building and contents)

Storm damage claims are also very common in Australia, particularly in areas like Northern Queensland where premiums are higher due to the threat of cyclones.  Powerful storms can wreak havoc on your home and its contents, so ensuring you’re covered for such an event is always a good idea.

“A specifically designed landlord insurance policy will help to ensure you are not left out of pocket should these unforeseen events occur,” Ms Parrella said. “A standard building and contents insurance policy generally won’t cover landlords for many of these risks.”

This is why you should do as much independent research as you can before settling on a landlord insurance policy. You can use the Canstar website to have a look at the insurance policies on the market that suit your needs.

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