Is Landlord Insurance Necessary?

If you’re thinking of purchasing a property and letting it out to tenants (or you already do), top of your list of priorities should be finding landlord insurance and, more precisely, a policy that suits your particular needs.

Landlord insurance can help protect you against a number of things that other policies don’t, and when its specifics have been taken into consideration, it isn’t all that expensive – during the CANSTAR ratings process, the average policy cost was around $1420* a year. Being an investment expense, landlord insurance is tax deductible.

 

What’s the difference – landlord or building insurance?

Many people make the mistake of thinking building insurance is sufficient to cover a property they are leasing.

The problem is that building insurance alone doesn’t cover everything that has the potential to go wrong in a landlord/tenant situation. The contents of a building, for instance, are not covered by building insurance, which means that should your property become flooded, the fittings and carpets would not be covered by the policy. Considering the number of storms and cyclones the country has been facing in recent years, this could prove to be a costly oversight.

Another crucial element of landlord insurance that isn’t covered in alternative policies is loss of rent. Whilst not all policies will protect against all potential situations, most tend to cover the three most common issues:

  • Default – the tenant ceases rental payments (whether remaining in the property or moving out suddenly; death of the tenant may also be covered)
  • Tenant eviction – the tenant has been asked to leave the property
  • The property is not tenantable (due to flood or fire, for example)

Some policies will also cover legal expenses, so that if a landlord ends up having to take his tenant to court, he doesn’t have to face hefty legal fees. Many also cover malicious acts or damage to the property or contents (which does not include wear and tear), another frighteningly common problem landlords face.

 

Check what is covered by your landlord insurance

The main thing to remember is that it is crucial when purchasing landlord insurance to check all the terms and conditions, what is covered and what is not covered, and the excess applicable. These elements can vary wildly from policy to policy, so you need to make sure that what you’re buying fits your circumstances exactly.

With the right policy in place, which requires some serious shopping around (and CANSTAR’s ratings are a great place to start!), landlords can be covered for not only damage to the building and its contents, but rental default and damage to the contents and fittings. If you’re wondering whether or not you need landlord insurance, perhaps the better question is, can you afford to be without it?

* CANSTAR obtained nine different landlord insurance quotes and the average cost was $1423.80.

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