Now that you have bought your own investment property in Perth, you have been advised to purchase Landlord Insurance but you are not certain what this entails. Aside from all the costs of new ownership for your rental property, you wonder if Landlord Insurance is really worth it or can you dodge yet another cost of property ownership?
As Property Managers in Perth, here are some commonly asked questions by our Property Owners:
- What is Landlord Insurance?
- What does it Cover?
- What does it Not Cover?
- What is Landlord Public Liability insurance?
- What to look for in a good insurance policy?
- What to watch out for when purchasing the Landlord Insurance policy?
- Do Property Owners need Landlord Insurance?
- Is Landlord Insurance Tax Deductible?
What is Landlord Insurance?
Landlord insurance is an insurance policy specifically designed to protect Property Owners from the risk of renting out a property when the exposure is associated to the tenancy of the property.
What does it cover?
Generally, the 3 most common areas that a Landlord Insurance Policy covers include:
- Tenancy Cover (loss of rent, eviction of tenancy)
- Loss of Rent (example non rent payment and legal expenses involved in tenant eviction)
- Loss due to Rental Risk (example: burglary or theft by tenants or their guests)
Optional Extras and Add-ons could include:
- Building Cover (example: damage due to natural disasters, vandalism by tenants or water damage to the building)
- Content Cover (example: damages to appliances, fixture and fittings due to natural disasters or water damage)
What does it NOT cover?
It is essential that you read your Landlord Insurance policy closely, especially what is contained in the Terms & Conditions. While this vary with different policies, be aware that generally, Landlord Insurance does not cover:
- Building & Content
- General Wear & Tear
- Damage caused by Property Owner or their Agents
- Damage caused by Pests
- Damage caused by Pets
- Specific areas not rented out (granny flat/ studio)
- Tenant repairs, building defects, mould damage, tenant contents
- Market conditions
What is the difference between Landlord Insurance and Building & Content Insurance?
Typically, landlord insurance covers risks associated with the tenancy itself.
Insurance companies usually offer a higher coverage which you can opt into for a higher premium. If you select a higher coverage, landlord insurance may offer a similar level of coverage as a standard home insurance policy with building and content included while providing the additional coverage against risks associated with tenancy issues.
What is a Landlord Public Liability insurance?
Public liability covers a wide range of circumstances where someone is injured due to someone else’s negligence. Individuals, businesses and organisations have a 'duty of care' to ensure the safety of people.
The definition of Public Liability insurance is “insurance covering a person or business for costs from legal action if they are found liable for death or injury, loss or damage of property resulting from their negligence”.
Although it is common that Landlord insurance policies typically include a version of public liability insurance in their existing T&Cs, to help protect tenants as well as their guests, it pays to make doubly sure!
Some examples of when public liability insurance may come into play include:
- A piece of carpet or flooring coming loose and tripping a visitor, injuring themselves.
- A balustrade, a timber of the decking or a piece of staircase falls off and injures a guest.
What to look for in a good Landlord insurance policy?
While scouting around for a Landlord Insurance policy, it would be good to consider the following:
- Inclusions or exclusions (coverage for building, content and pay special attention whether it covers damage caused by natural disasters, damage caused by pets of tenants and their guests, thefts by the tenant’s guests, public liability cover for those visiting the property).
- Extras: some insurance policies include little extras such as replacement of locks.
- Price: note that different areas may carry varying risks (example closer to a shoreline) and may cost more. Price varies according to the inclusions and exclusions stated above as well.
What to watch out for when purchasing a Landlord Insurance policy?
- Have you considered if you require strata insurance for common areas in the property?
- If you rented out a fully furnished property, is that covered as well?
- Are there risks associated to your property specifically such as high fire-risk zone or flood zone?
- Have you considered “loyalty penalty” where some insurers actually increase their premiums for loyal customers over time?
Is Landlord Insurance Tax Deductible?
Yes, this is a tax deductible expense however, please consult a tax professional for further advice.
Do Property Owners need Landlord Insurance?
Property investors know that having someone else, whom you do not know, live in your house presents a risk for potential damages. Plus, accidents happen. So, if a renter or their guest accidentally is injured while on your property, you could be exposed to thousands of dollars on claim.
Cashflow is critical for a property owner. If there is a loss of rent due to damages to the property, can you afford to cover for a prolonged period of loss of rent?
In order to decide if purchasing a landlord insurance is worthwhile, consider if you can afford to weather these risks that have been detailed in the article. Our property managers are available to discuss your questions further so feel free to reach out to us for any property management advice.