The Truth about Landlord Insurance

Insurance companies are always happy to accept your premiums – but when things go wrong, many property owners find that their policy does not cover them in the way they thought it would. This article will help you to ask questions of your insurer to ensure the premium you are paying is worth it.

In my personal opinion, it is usually better to insure with companies that specialise in Landlord insurance, rather than more general insurers such as banks etc. But companies and policies do change, so it still pays to shop around. However, do not shop on price as this can be false economy, shop on content. After all, you want a policy that will actually pay if worst comes to worst. The devil is in the fine print.

Legal Liability

To me, this is one of the most important reasons for having landlord insurance. Ensure your policy will defend and pay any liability claims made against you and to what limit. First check WHO is covered. A good policy should defend law suits against you by anyone (who is not your family or your employee) who comes onto your property – regardless if they are invited and authorised, or not. For example, a neighbour’s child may jump the fence without your tenant’s permission to collect a ball, but be injured and you could still face a potential law suit.

Also, if you are considering doing renovations, many policies will not cover injury if the value of the work is above a certain limit.

Loss of Rent

This is one of the most common claims, when a tenant defaults on the rent or breaks lease – but many insurers do not pay much in these circumstances. Sometimes it is worth downloading a ‘claim form’ from the company’s website so you can see what would be required if your tenant defaulted. You will find in your Product Disclosure Statement the terms and conditions where ‘loss of rent’ can be claimed.

If a fixed term lease is not in place or has expired, this classes as a ‘periodic agreement’ which is when the tenant pays ‘periodically’ without an official lease. Insurers usually pay out less for periodic agreements (two weeks rent is usual – minus your excess). Even if there is a lease in place, you are often not covered for the full loss of rent until you find another tenant, some companies cap it at 4 weeks or 6 weeks rent after the tenant moves out and you are able to advertise the property again. Companies often advertise 52 weeks ‘loss of rent’ – but this usually only applies if there has been some type of major event which makes your home uninhabitable.

Remember, that the number of weeks rent paid by the insurance company will take the bond into consideration. So if you have 4 weeks bond, and you need to pay a certain amount out of that bond for cleaning or rubbish removal or repairs, any remaining amount will come off the amount the insurance company will pay.

Inspection clause

Many insurance companies require minimum inspection periods. Ensure you instruct your property manager to put together an inspection schedule which will at least meet these requirements. If you have not received an inspection report, chase them up as your insurance could be reduced or voided.

Damage

Find out what your insurer will replace ‘new for old’ or if they will only repair to the condition the item was in. Often insurers will offer a mixed option. For example, a stove may be ‘new for old’, but your carpet will be calculated using a depreciation calculation that the insurer sets. Also check if payment will occur if it is not your tenant which causes it, but an invited or uninvited person.

Excess

Check your insurance company’s PDS on excess. If your property is left with holes in the walls, some damaged carpet, a broken window, and a broken garage door – each of these things may potentially be charged as a separate ‘event’ and therefore each subject to a separate excess which will reduce your claimable amount considerably.

Cleaning

Most policies will not cover you for cleaning and rubbish removal if the tenant leaves a mess, this must be taken out of the bond.

Sub-letting

Many insurance companies will not insure you if you allow your tenant to sub-let the property to people not on the lease. If your agent becomes aware of this occurring, it is important that there is a paper trail which shows all efforts to prevent tenants from doing this.

Vacancy

If your property is vacant for more than a certain period of time (consult your PDS), your insurer must be notified and a higher excess may be charged to allow your cover to continue.

Vermin and Termites

Most policies will not cover for damage caused by vermin, termites or other insect and wildlife, so it is important to keep up regular termite checks and vermin control. Discuss this with your property manager so that routine inspections are held annually.

Renovation, structural defects, poor maintenance

Most policies will not cover you if the claim is due to a lack of maintenance, a renovation that you undertook, or a structural defect that you know about. Therefore it is important to keep your property properly maintained.

Trees

Most policies will not cover you for damage caused by tree roots.

Swimming pools

Cover around swimming pools varies greatly between insurers – you may find that a pool liner is not covered, but a pool pump is, and the pool tiles are not, but the pool fence is etc.. If you have a pool, I suggest you speak to a claims expert at your insurance company to find out what is covered, and in what circumstances.