Landlord's Insurance - Is it Important?
Most property investors understand the importance of insuring their asset. However, some investors assume that by taking out building insurance the property is insured in the event of any damage being caused.
Yet your building insurance policy only covers the actual building. It doesn’t cover the contents you own within the building, such as the floor coverings or window treatments. Your building insurance policy also doesn’t cover you against a range of events that could potentially impact your ability to keep generating rental income.
A Landlord’s Insurance policy provides additional levels of protection specifically for property investors who rely on the rental income generated by the asset. Aside from covering the building and landlord’s contents, there are a number of other things a Landlord’s Insurance policy can cover.
Before you decide on which Landlord’s Insurance policy is right for your investment needs, here are some of the types of coverage available.
Loss or damage to the building: coverage for any damage to the building caused by tenants or visitors
Accidental loss or damage to contents: coverage for any damage to contents owned by the landlord, including items such as floor coverings, window coverings, ovens or cooktops, dishwashers, light fittings, air conditioning units and any other fixtures or fittings that are included in the tenancy agreement.
Malicious damage: coverage for any malicious damage or theft caused by the tenant.
Pet damage: coverage for any damage caused to the property or landlord-owned fixtures caused by tenant’s pets.
Loss of rent: coverage for any loss of rent from the property due to default, death of a tenant, broken lease agreements, denial of access, or tenant hardship. The landlord is covered for any loss of rent while the property is uninhabitable
Legal liability: protection against the possibility of injury due to landlord’s negligence.
Tax audit: covers the cost associated with professional fees charged in relation to a tax audit related to your investment property.
Some of the items included in this list are considered extras with some insurance companies. Others simply aren’t available with some insurers. The easiest way to know whether your investment property is adequately protected is to compare the inclusions and extras offered by various Landlord’s Insurance policies.
Most Common Landlord’s Insurance Claims
No matter what level of coverage you choose on your Landlord’s Insurance policy, there are some claims that are more common than others. These include:
Rent default: Even the best of tenants can experience unexpected financial difficulties, which puts them at risk of being unable to pay the rent over a period of time. A landlord or property agent may find it challenging – and expensive - to collect rent arrears if the tenant has been made redundant or suffered a debilitating illness that has left them unable to work.
Loss of rental income: Some tenants may simply abscond, or leave the property without paying all the rent due. Others may cause sufficient damage to the property before leaving so as to render the home uninhabitable until repairs are completed.
Death of a sole tenant: Most landlords only consider whether the tenant is paying rent and whether it will be possible to find new tenants if the existing ones leave. However, in the event that a sole tenant dies, the landlord is responsible for dealing with the tenant’s family as well as cooperating with police.
The landlord also needs to make arrangements for the removal of tenant’s belongings, before arranging to have the property cleaned and securing all the appropriate paperwork before the property can be re-leased to new tenants. Throughout all of these proceedings, the property isn’t generating any rental income, so it pays to be covered.
There are a number of circumstances in which a Landlord’s Insurance policy can provide coverage for loss of rental income or rent default. Always check the policy to determine exactly what you’re covered against in terms of protecting your rental income.
Accidental damage: Let’s face it: accidents happen. When a tenant causes accidental damage to a rental property, the landlord is often left with a large repair bill.
Malicious damage: Not all tenants will treat your investment property as their own and may seek to cause damage either through malice, vindictiveness or spite. Tenants may leave holes in walls, broken doors, smashed windows or slashed carpets and window coverings before leaving the premises, all of which need to be repaired before new tenants can move in.
Your insurance premiums are tax deductible, so don’t skimp on the cost of protecting your investment. Take the time to review your insurance policies and be sure you have the level of coverage you need to protect your asset and the income it generates.
This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.
