Nobody plans to ever have to make a claim under a landlord insurance policy.
However as we all know, life is unpredictable and sometimes we just get unlucky: whether it’s a bad tenant, a natural disaster or simply a freak accident. These events can put a property investor at risk of thousands of $$$ of repairs and lost rent – losses which can be avoided through purchasing landlord insurance.
If you’re a property investor you might be wondering whether it is worth spending an extra few hundred dollars a year on insurance – after all, it eats into your rental income. In this post, I will cover some common questions relating to landlord insurance.
What is the difference between landlord insurance and home insurance?
It can be confusing when there are so many property-related insurances on the market to understand what they actually cover. It is always important to read the product disclosure statement (PDS) carefully to determine whether a policy provides an appropriate level of cover.
Traditional home insurance is generally limited to damage to the physical structure of a building as a result of specific events such as fire, flood, storm or earthquake. In addition, strata-titled properties already have their own building insurance paid for via strata fees.
Landlord insurance is specifically designed for investment property owners and covers losses relating to the lease of a property such as:
- Loss of rent due to tenant default
- Costs involved in evicting a tenant
- Accidental and malicious damage to a property and its contents
- Theft of owner-owned furniture, fittings and fixtures
- Death or injury of a tenant
For example, if your investment property is damaged in a bushfire, a home insurance policy would cover the cost of repairing any structural damage caused by the fire. Landlord insurance can go further to cover repairs to internal fixtures and fittings, as well as loss of rent whilst the property is unhabitable. This can be a great help – especially if counting on your rental income to meet your regular mortgage payments.
Why do I need landlord insurance when my tenant already pays a bond?
A bond will often not cover all of the expenses you are legally entitled to when a tenant leaves. Landlord insurance ensures that you are not out of pocket, for example, when a tenant leaves without paying their last month’s rent but there are still repairs to be done. Having to chase up a tenant for these costs is expensive, stressful and unfortunately, often unfruitful.
Landlord insurance can also cover events that aren’t the responsibility of a tenant such as natural disasters and claims made against you by your tenant for injury.
What to look for in a landlord insurance policy
Whilst the cost of a policy should be factored in, it’s important not to underinsure yourself. Some things to watch out for in a PDS include:
- The excess payable under the policy – if this is too high, it might not be worth claiming under the policy
- What events does it cover – does it include natural disasters as well as broken leases?
- What contents are covered by the policy – does it include the cost of replacing big ticket items such as internal walls, carpets, electrical appliances, curtains, blinds and furniture?
- Who the policy covers – is it only actions of the tenant that are covered or does it also cover their guests and pets, and also your own duty of care to your tenant?
- What do you need to prove – does it cover both accidental and malicious damage?
- Policy limits – is there a limit on how much lost rent you can claim and how long do you have to wait before you can claim? What is the value of the items that you are insuring?
- Processing time for claims – to ensure your cash flow is not affected
Other important things to note
1.Always pay your insurance premiums on time – if your premium is overdue and something happens to your property, your insurer may refuse to pay out your claim.
2.Make sure you are honest with your insurer – by failing to make appropriate disclosures to your insurer about the nature of your leasing arrangements and property features, you could have your claim reduced or refused, or your policy cancelled.
3.Don’t forget to claim your insurance premiums in your tax return –landlord insurance is 100% tax deductible because it relates to earning your rental income.
At Mortgage Corp, we can refer you to a specialist to assist with your insurance needs. We work with a network of property experts from accountants, real estate agents, buyers agents to solicitors and conveyancers, and assist our clients with the optimal structuring of their property portfolio. To find out how we can help you grow a solid property portfolio, request a Free Mortgage Strategy Consultation or call 1300 138 943!
About Mortgage Corp
Based in Mount Waverley, Mortgage Corp specialises in helping successful professionals and property investors maximise their long term investment return with our strategic approach to loan serviceability, tax savings and financial freedom.
While most banks and brokers focus on merely getting you a loan, Mortgage Corp is committed to getting you a comprehensive investment result. Request a Free Loan Strategy Session with our senior mortgage strategist Neil Carstairs today!
About Neil Carstairs
Neil is the founder of Mortgage Corp, an active property investor and awarding winning MFAA accredited finance broker with more than 10 years’ mortgage broking experience. Currently, Neil is one of only 19 MFAA Certified Mentors in VIC/TAS region.
He is known for his strategic approach to investing and ability to reach fast, successful outcomes for clients where his industry peers could not. Connect with Neil on LinkedIn