Do You Really Need Landlord Insurance?

Do You Really Need Landlord Insurance?

 

What it covers, and why it’s important for every property investor.

 

When it comes to property investment - even in these more uncertain times - Australia is a market ripe with potential.

However, as a property investor, you're not simply buying bricks and mortar.

You’re navigating a complex - and ever-changing - real estate landscape, collecting rent, attending to maintenance, juggling tenant relationships and effectively managing the inherent risks that come with owning a rental property.

And it’s under these challenging - yet rewarding - conditions that one tool stands out as being crucial to your success - Landlord Insurance.

Landlord Insurance is not just an added extra, or a luxury for those with deep pockets.

Rather, it's a critical safety net that exists to protect the substantial investment you've made - and provide that all-elusive, yet valuable, peace-of-mind.

Yet, we've noticed that many landlords still see Landlord Insurance as an optional avenue, often overlooking the true benefits of having the right insurance in place.

So to make sure you navigate this journey well-prepared (and well-protected), we unpack what Landlord's Insurance actually is, why it's essential, how to get the best out of it and ways it can protect you and your investment.

So, first things first… what is Landlord Insurance?

 

Decoding the Details - What is Landlord Insurance?

If you’re like most, you could be wondering, ‘do I really need yet another insurance policy?’ or ‘isn’t my regular home and contents insurance enough?’.

Unfortunately, the short answer to those questions are - yes you do, and no, it’s not.

At its core, Landlord Insurance is a specific, and specialised, type of insurance policy designed specifically for investors who rent out their properties.

Not only does it go above and beyond the scope of regular home insurance, these policies are tailored to protect landlords from the unique challenges they may face.

So what’s the difference?

One of the key distinctions between regular home insurance and Landlord Insurance is the breadth of coverage.

Whereas home and contents insurance typically covers your property - and the possessions within it - from damages due to fires, storms, theft and other disasters, Landlord Insurance extends far beyond just physical damage to the property.

It provides coverage for a variety of scenarios that are unique to rental property ownership - like property damage, loss of rent, liability and tenant-related issues.

And while policies vary, any good policy should cover you, at a minimum, for:

-          $20M public liability to cover your tenant(s), or anyone else, who might get injured on your property. Landlord Insurance can help with legal expenses and compensation.

-          Income cover - this occurs when tenants are unable (or unwilling) to meet their rental obligations. Essentially, Landlord Insurance covers the loss of rent you would otherwise have received.

-          Legal liability to cover tenant disputes that have to go to court, or even things like property tax audits

-          Accidental damage. This is crucial, as it’s one of the most common issues rental properties experience - most tenants don’t deliberately cause damage, but accidents do happen!

-          Malicious damage & theft. Because somewhere along the line, every landlord is likely to make a poor tenant choice

-          Contents. Although it’s a tenant’s responsibility to insure their own belongings, this will make sure that your things are covered, like carpets, blinds, lighting and permanent appliances like ovens, dishwashers and heaters

-          Pet Damage. This one’s definitely worth having, as state tribunals don’t always favour landlords when it comes to damage caused by furry or feathered friends

-          Natural disasters and general catastrophes are an - albeit rare - fact of life. So it’s better to be safe than sorry

And Landlord Insurance is not a one-size-fits-all solution - it needs to be tailored to your property, your tenants and your willingness to take a risk - don’t forget to check the finer details. A good policy should also specify cover for building-related claims.

 

Why regular home insurance isn’t enough.

So with that in mind, it’s crucial to understand why regular home insurance isn’t enough.

Essentially, Home Insurance policies are designed to protect owner-occupied homes, meaning they often lack key provisions that cater to property investors - meaning they fall short when crunch time comes.

For instance, say you’ve rented out your investment property.

Unfortunately, an electrical fault causes a fire. The property is now uninhabitable, and your tenant is forced to move out while the property is repaired - leaving you out of pocket many months’ rent.

Under a regular Home Insurance policy, the physical damages are covered - happy days. But the loss of rental income during this period would not be compensated for.

This financial shortfall could have significant financial implications, especially if you rely on this rental income to meet mortgage payments or other expenses.

Likewise, if a tenant is injured on your property due to a poorly maintained porch, deck or walkway they may decide to sue. This is where regular home insurance really lets you down.

While your policy may offer some liability cover, it may not extend to tenants, which could see you running headfirst into a real headache if you’re not able to pay.

These are just two examples where Landlord Insurance is important.

With these in mind, it’s easy to see why Landlord Insurance policy isn't an extravagance - it's a necessity.

 

OK, I know I need it. So what does Landlord Insurance cost?

While the real question lies in ‘what’s the cost of not having Landlord Insurance?’ - which often only gets answered when things go awry - of course, the question of upfront out-of-pocket costs can’t be ignored.

The fact is, the cost of Landlord Insurance varies based on any number of factors, including the property’s location, type, value, risk of weather events and the extent of the coverage you select.

And each of these can only be determined on a case-by-case basis.

For instance, a policy covering an apartment in a major city might cost more (or less) than one for a house in the ‘burbs due to the differences in rental yields, property values and potential risks.

Likewise, a comprehensive Landlord Insurance policy - that includes protection against loss of rent, liability coverage and coverage for malicious damage will cost more than a simple policy that covers only liability and accidental damage.

Essentially, a basic policy is going to be cheaper than one than one with all the bells and whistles.

Another mitigating factor is the size of the excess you choose.

‘Excess’ is the fixed amount upfront amount you have to pay when making a claim.

Policies that offer a low excess can result in a higher premium, or vice versa.

But as a guide, in South Australia, annual Landlord Insurance premiums can start at several hundred, running into several thousand dollars per year.

And while these costs may seem very high, they pale in comparison to the potential financial losses you might face if you fail to take out adequate coverage.

In fact, a single incident can result in losses far exceeding annual insurance premiums!

One more thing to keep in mind - that’s actually good news for investors - is that, generally, Landlord Insurance premiums are tax-deductible, giving you a boost come June 30.

So when considering the cost of Landlord's Insurance, it's important to weigh the cost of the premium against the potential risk.

View it not as an expense, but an investment towards your much-more-valuable investment.

 

How do I choose the best Landlord Insurance for my property?

Now we’ve covered cost, it’s time to choose a Landlord insurance policy.

In today’s vast insurance landscape, most general insurers offer Landlord Insurance that covers all manner of property type.

But in a world where it’s not always easy to compare apples with apples, deciding which Landlord Insurance policy is right for you can be the trickiest part.

Not all policies are created equal, and the cheapest option may not provide the coverage you need.

So choosing the right Landlord Insurance (and insurer) requires time, patience and a willingness to read the fine print.

First up, carefully evaluate your unique circumstances and make a list of any potential risks you’d like to be covered for. Assess the value of your property (and any belongings within it) to ensure you have a clear picture of what you need covered - because under-insuring yourself can be a real headache down the track.

Hunt around and pick a few policies that appear to cover everything that’s important to you.

Then get reading.

Scrutinise each policy’s details to understand what’s covered and - even more importantly - what’s excluded.

Ask questions, compare multiple policies carefully and make sure you’re across all the Ts & Cs.

And if you’re unsure? Don’t be afraid to lean on the experts!

A well-experienced property manager can be worth their weight in gold.

Not only will they be versed in all the most up-to-date legalities and problems facing real estate, they’ve also more than likely ‘seen it all’ - those one-in-a-million, obscure cases that have cropped up, where a landlord found themselves exposed.

This experience and insider knowledge can prove invaluable when it comes to choosing the right Landlord Insurance policy for you.

And the bonus? They also take care of all of the ‘day-to-day’ stuff that comes up with owning a rental property - maintenance, tenant communication, collecting rent, disputes - saving you a whole lot of stress in the long run.

 

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In the complex world of property investment, Landlord insurance is not just an option - it’s a necessity.

A robust Landlord Insurance policy bridges the gap between investment and disaster, providing the coverage you need when things head south.

And when chosen wisely, Landlord Insurance isn't just another expense, but a strategic tool that protects your hard-earned asset… leaving you to focus on maximising your property's potential.

So, don't wait for an unforeseen event to expose the vulnerabilities of being a landlord - get out there and secure the protection your investment deserves!

 

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As property management experts with over 21+ years combined experience in buying, selling and managing property in Adelaide, We Connect Property are ready and waiting to offer expert guidance and support when you need it most, and answer all your questions about property investing.

 

Check out our 5 star Google reviews or Rate My Agent testimonials to find out what our happy clients think!

 

And if you’re just getting started, or looking for valuable property investment, buying or selling tips, tricks and advice?

Check out these other handy articles on our blog:

 

×          Frequently Asked Questions About Property Investment

×          Dos & Don’ts of Renovating An Investment Property

×          New To Property Investing? Don’t Make These 4 Rookie Mistakes

 

Give us a call on 0403 799 983 today, or drop a line to sales@weconnectproperty.com.au - we can’t wait to chat!

 

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DISCLAIMER: All recommendations made by We Connect Property are general in nature and not to be relied upon as legal or financial advice. To ensure accuracy, we always strongly recommend seeking independent, professional advice tailored to your specific situation before making any investment or financial decisions.