Investment Property

How does landlord insurance work?

Nathan Gooley
Oct 29, 2021
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

If you are renting out your investment property you need to protect it from risk, including any unforeseen events and damage. 

This makes landlord insurance - or investment property insurance - essential as it can provide financial cover for the building structure, fixtures, its contents and even the actions of your tenants. Read our Q&A explainer for answers to all the most common questions around landlord insurance in Australia, so you know what to look for when you start getting quotes. 

What is landlord insurance?

As its name suggests, landlord insurance is a special type of insurance designed to cover the unique needs of a tenanted rental property. Without it you could face potentially damaging out-of-pocket costs for a range of events, including repairing damage to your property, or legal expenses related to a loss of rent claim.

Both types of policies are divided into building insurance - which covers the structure, and contents insurance - which covers everything in a home, including fixtures and fittings. Insurers typically give you the option to take out one or both, depending on your needs and the type of cover you require. 

What does landlord insurance cover?

Take out a landlord insurance policy and it will give you protection - or cover - for the following core events or scenarios:

  • Damage to the building or structure of your investment property, either due to a natural event or by a tenant’s actions. 
  • Damage or theft of the contents of your investment property, from an accident or due to the intentional actions of a tenant. This generally will include damage caused by tenants, guests or their pets.
  • Loss of rental income, if your tenant leaves without paying their rent or they fail to pay their rent.

Depending on the policy you take out there may also be other benefits unique to landlords, such as cover for:

  • Legal liability claims against you by tenants or other parties, if you are liable as owner of the property.
  • Legal expenses related to a loss of rent claim.
  • Bailiff or sheriff fee to evict tenants.
  • Replacement of door locks if tenants are evicted.
  • Property manager fee for attending court or tribunal hearings.

Like any insurance product you need to confirm what a policy covers so you know what you can claim. Many policies will cover natural events like fire and storm damage, but exclude flood events and make this an additional extra which makes the policy more expensive. 

Tip: The key is to choose a policy from a reputable company, which clearly states what is included in their coverage. You also need to review the Product Disclosure Statement (PDS) carefully to be sure the product covers the events you want protection against.

What’s the difference between landlord insurance and home insurance?

As we have discovered landlord insurance has specific features designed to cover the unique requirements of a tenanted rental property and the income it produces. This includes scenarios such as the tenant damaging your property or the tenant absconding and not paying their rent. 

In contrast home insurance primarily provides cover against natural events, fire or theft - with no features related to a tenancy. 

Let’s now look at what you can expect to pay for landlord insurance.

How much does landlord insurance cost?

The cost of investment property insurance is determined by a number of factors, specifically:

  • The value of the rental property being insured.
  • The age of the building and what material it is constructed from.
  • If you take out cover for building and/or contents insurance.
  • The value of the contents being insured.
  • The location of the property, and crime levels in the area.
  • If the property is a unit or a detached house. Units in a strata complex will be covered by their own building insurance, so only contents insurance will be required.
  • The insurer you are buying the policy from.

The only way of getting a firm idea of the cost of landlord insurance for your investment property is to get quotes from insurers who offer this type of policy. Comparison sites like comparethemarket.com.au and canstar.com.au allow you to get quotes from a variety of insurers. You are also entitled to claim the premiums you pay for landlord insurance as they are generally tax deductible as an investment expense.

Let’s now look at some frequently asked questions regarding landlord insurance. 

Frequently Asked Questions: Landlord Insurance

Does landlord insurance cover lost rental income?

Some landlord insurance policies cover lost rental income, when your tenant is unable or unwilling to pay their rent, or breaks their lease early. The policy will typically specify a dollar amount and/or a specific time frame when you are covered. You should always clarify with the insurer if a specific type of cover is available before you purchase a policy. 

Is landlord insurance a legal requirement?

Landlord insurance is not a legal requirement in any state or territory, but you will be exposing yourself to unnecessary financial risk if you don’t carry some form of cover for your investment property.

What isn’t covered by landlord insurance?

Like most insurance policies not every eventuality or scenario will be covered, but this depends on your specific policy and its terms and conditions. Most landlord insurance will not cover general wear and tear to your property, as well as any damage caused by pests like termites or rodents. If you damage the property yourself this is also unlikely to be covered, as are any parts of the property that are not rented out. 

How much should I insure my contents for?

You should insure your contents for what they would cost to replace today - not what you originally paid for them. This means you should regularly review your policy to ensure the contents of your investment property are adequately covered. Changes to take into consideration include any renovations you undertake that improve the value of the property, as well as increases in the replacement value of any fixtures or fittings.

What about landlord insurance for a strata property?

If your investment property is in a strata unit or townhouse, building insurance will generally be taken out by the strata or body corporate. This means you will only have to insure the contents, including any fixtures and fittings - as well as the actions of your tenants. 

Have any questions about investing in property - or anything else? We’re happy to help, and our local team are available to chat at a time that suits your schedule.

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