What is landlord insurance and what does it cover?

If you own and rent out an investment property, you may wish to consider landlord insurance. Here’s an outline of what landlord insurance covers and some features to look for in a policy.

Landlord insurance may come in handy to help cover you against some of the financial risks involved in renting out an investment property. For example, while many tenants will pay their rent on time and treat your property as if it were their own, it could be beneficial to insure against the worst-case scenario where a tenant does not pay their rent or causes damage to your property. There is also the risk of unforeseen disasters or events, such as fires and floods, that may damage your property and possessions.

Warning: Many insurers are no longer issuing new landlord insurance policies and others have withdrawn cover for rental default and other landlord specific covers. Please check all policy details with your insurer and read the PDS before making a decision. (8 July, 2020)

What is landlord insurance?

Landlord insurance is a type of policy that typically covers investment property owners for a variety of risks, including loss or damage caused by tenants. The types of events that a landlord insurance policy will cover may include:

  • Theft or burglary by tenants, their guests or other burglars
  • Malicious damage or vandalism by tenants or their guests
  • Loss of rent due to tenant default or breaking of the lease
  • Legal expenses required to evict a tenant

Landlord insurance may also cover damage caused by disasters such as storms, floods and fires, and potentially any loss of rent if your property becomes unlivable after an insured event. But as we’ll see below, exactly what’s covered could well depend on the policy you choose.

What should you consider when choosing a landlord insurance policy?

There are a few items to check when purchasing landlord insurance – such as the terms and conditions of any policy you’re considering, what it does and doesn’t cover, and the excess that applies if you make a claim. These elements may vary from policy to policy, so shopping around and reading the product disclosure statements (PDS) could be a good idea. 

Cost of landlord insurance

The cost of landlord insurance generally varies between the states and territories, and also varies by the risk associated with your property’s postcode. Insurers may base premium prices on factors such as the risk of rental default in an area, the risk of damage by tenants in an area, and the risk of natural disasters in an area, based on historical data.

Inclusions and exclusions of landlord insurance

Beyond the essential inclusions, there are plenty of other features and inclusions you can look for in a policy. Some of these can include: 

  • Damage caused by a tenant’s pet
  • Public liability cover for injury to someone visiting your investment property
  • Rent loss due to an insured event, such as a tenant defaulting on their rental payments the death of a sole tenant or the eviction of a tenant by court order  
  • Re-letting expenses after a claim on rental loss
  • Removal of a tenant’s goods after a claim on rental loss
  • The limit on the weekly rent that you may receive after a claim on rental loss
  • Change of locks after a claim on rental loss
  • Legal costs such as representation fees, related to a tenant eviction by court order or a claim for rental loss
  • Cover for professional tax audit fees

Some common exclusions may include general maintenance expenses or the costs of repairs by the tenant, rental income due to not having a tenant and general wear and tear.

If you are concerned that the cost of policy premiums and the inclusion of optional extras might outweigh the benefits of being insured, it could be worth noting that your premium may be tax deductible. According to the Australian Taxation Office (ATO) your landlord insurance policy premium may be tax deductible as it is an investment expense.

How do you choose a landlord insurance policy?

What to look for in a landlord insurance policy depends on what insurance needs are important to you. Before you start looking, you might like to begin by asking yourself the following questions: 

What level of insurance do you want: Building-only or home and contents? 

Building-only or home insurance covers financial losses caused by risks including physical damage to your property, while contents insurance is designed to cover the loss, theft or damage of your possessions. Home and contents insurance policies cover a combination of both the property and your possessions in it.

It may be worth considering home and contents insurance if you rent out a furnished property. This is because it could cost a significant amount to replace the contents if they are damaged. Landlords who rent out an unfurnished property might decide building-only home insurance will be enough to cover the property. However, keep in mind that building-only insurance generally doesn’t cover items like carpets, blinds and other fittings you might still have at a property, even if it isn’t fully furnished. 

Additionally, typical landlord home and contents insurance policies are unlikely to cover the possessions of the tenant within the property. Therefore, they would generally need to take out contents cover of their own.

Will you let your tenants keep pets on the property?

If you allow tenants to keep pets on your rental property and are concerned about the damage that they may cause, you may want to ensure that cover against damage caused by pets is included in your insurance policy.

If you are not keen on letting your tenants keep pets, keep in mind that the rental laws in some states give tenants the right to keep pets upon request. In Victoria, for example, the request can be refused by the landlord, however, this can only be done with approval from the Victorian Civil and Administrative Tribunal (VCAT). If you are unable to refuse pets on your property, small adjustments such as removing easily damaged fixtures may help to reduce the potential damage.

Are there any specific risks (e.g. flood or bushfire) your property needs to have covered?

As many property owners unfortunately know, flooding can be a major issue when it comes to choosing a place to buy, as well as the level of insurance you might need. 

You can check your state government’s flood maps for your area or your local council’s planning maps online to see if your investment property is in a flood zone. In general, properties near rivers or in low-lying areas can be particularly prone to flooding. If your property is in a potential flood zone, you may want to ensure that you are sufficiently covered as the level of protection may vary across policies.

Does the policy cover accidental and malicious damage, or just theft?

You might have wonderful tenants – but what about their friends or other guests who visit them? Hopefully you’d never need your cover for accidental breakages and malicious damage or vandalism, but if something did happen, it may be worthwhile to know that it is included in your policy. 

Where is the property located?

The location of a property can affect how much the premiums cost to insure it. For example, landlords who own properties in flood-prone areas may face higher insurance premiums. 

Can you get landlord insurance for a short-term rental property?

There are also policies available to cover short-term rental landlords who use sites like Airbnb, Stayz and Flatmates.com.au to rent out a room in their own home or investment property. If homeowners aren’t covered and a renter or guest damages their property, they could end up paying for expensive repairs on their own. Even worse, they could also face expensive public liability claims if a renter is injured while staying on their property – which could amount to hundreds of thousands of dollars.

There are a few different options for short-term rental landlord insurance, including Airbnb’s Host Protection Insurance program, and ShareCover home and contents policies for short-term rentals, available from IAG and NRMA.

Eliza Parry-OkedenEliza is an Editorial Intern at Canstar and writes on a variety of topics relating to personal finance, insurance, property and more. She’s currently in the home stretch of a double degree in Law and Media and Communications at QUT. While once-upon-a-time she considered herself allergic to all things related to money, Eliza has proven adept at tackling even the most complex of financial topics and making them relatable to readers. She’s been able to learn a thing or two about her own finances too, and aims to encourage other young people to take charge of their finances – or at least to consume smashed avo responsibly.

Share this article