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Is Landlord Insurance Worth It? Protecting Your Investment Property

July 4, 2024 / Written by Rich Harvey

 

By Gary Hunter, Insurance Expert at Finder

 

If you own an investment property, you've likely considered ways to safeguard your rental income. Landlord insurance is a popular option, but is landlord insurance worth it if you have a security bond and meticulously screen tenants?

Let's delve into what landlord insurance offers and explore the value it brings to your investment strategy.  In essence, landlord insurance protects you from the most common risks associated with owning an investment property, including:

1. Damage from unexpected events : Protecting Your Investment

Landlord insurance covers a wide range of unforeseen events that can damage your property, including fires, bushfires, storms, floods, escaped water (like a burst pipe), and theft.  Similar to home insurance, it goes a step further by potentially covering malicious damage by tenants or their guests.

How Much Does It Pay Out?

Landlord insurance policies typically cover the full cost of repairs or replacements for covered events, but up to the insured value you select when purchasing the policy.  For example, if your insured property suffers roof damage from a storm, the policy would cover the entire repair cost,  assuming it falls within your insured amount.

The Importance of Proper Coverage:

Here's where things get crucial.  If a major event completely destroys your property, you might face an out-of-pocket expense if your coverage is insufficient.  Imagine insuring your property for $750,000, but the actual rebuilding cost is $900,000.  In this scenario, you'd be responsible for the $150,000 difference. 

How Much Does Landlord Insurance Cost?

The cost of landlord insurance varies depending on several factors, including:

  • Location and property value: Higher value properties or those in areas prone to natural disasters typically cost more to insure.
  • Building materials: Properties constructed with more durable materials might have lower premiums.
  • Level of coverage: Policies with broader coverage or higher payout limits will naturally cost more.
  • Your claims history: A history of previous claims might increase your premium.

Finding the Right Coverage:

To ensure you have adequate coverage without overpaying, consider using a building calculator to estimate your property's rebuild value.  This will help you select the appropriate insured value for your landlord insurance policy.

Remember: While a security bond can help cover minor tenant-related damages, landlord insurance provides a vital safety net against unforeseen events and potentially costly repairs.

2. rent Loss Protection: Avoiding Income Disruption

Landlord insurance offers "loss of rent" coverage, ensuring you continue to receive rental income even if your property becomes unlivable due to an insured event like a fire, storm, or flood.

The Scenario:  Imagine a burst pipe causing significant damage, rendering the property unsafe for your tenant to stay.  Most policies can cover your lost rental income for up to a year while repairs are underway.

Key Takeaway:  Loss of rent coverage provides valuable peace of mind, protecting your cash flow during unexpected events.

3. Mitigating Rent default : : When Tenants Fall Short (Optional Coverage)

There's always a risk of tenants defaulting on rent payments, even with careful screening.  Economic downturns can further increase this possibility.  Landlord insurance can offer protection against rent default, but it's typically an optional add-on to the base policy.

Before You Opt-In:  Consider your risk tolerance and vacancy rates in your area.  If defaults are uncommon and vacancies are easily filled, you might choose to forgo this coverage to save on premiums.

4. Legal Expense Coverage: Protecting Yourself from Lawsuits

Landlord insurance can also cover your legal expenses (usually with limits like $20 million or $30 million) if a tenant or visitor gets injured on your property and sues you.  While these incidents are infrequent, legal battles can be financially draining.

The Peace of Mind Factor:  Having legal expense coverage provides valuable protection against unforeseen lawsuits, offering peace of mind and potentially saving you significant costs.

Looking for the Best Landlord Insurance in QLD, VIC and NSW?

While there's no single "best" option, several reputable insurance providers offer landlord insurance in Queensland, Victoria & New South Wales.   The key is to compare quotes, coverage details, and customer service ratings to find a policy that aligns with your specific needs and budget.

Choosing the Right Coverage for Your Investment Property

Landlord insurance comes in three types, each catering to different ownership scenarios:

  • Building Insurance: This covers the structure itself, ideal for unfurnished, freestanding houses. Strata insurance typically covers the building for apartments, so you likely only need contents insurance.
  • Contents Insurance:  Protects your belongings within the property, such as whitegoods and furniture. This is ideal for landlords who own furnished strata properties (apartments).  Keep in mind, it doesn't cover your tenant's possessions.
  • Building and Contents Insurance:   This comprehensive option covers both the building and your contents. This might be the best choice if you rent out a furnished house.

Cost Considerations:

Finding the Right Coverage and Cost:

The average cost of landlord insurance can vary depending on factors like property value, location, and the level of coverage you choose.  To get an idea of costs and available plans, consider contacting a reputable insurance broker or comparing quotes online.

While the exact cost varies, expect to pay around $200 per month for landlord insurance on a $1 million property. Remember, this is often tax-deductible. The final price depends on several factors:

  • Property Value & Contents: Higher value properties and extensive contents will naturally cost more to insure.
  • Dwelling Type & Age: Older properties and those with less robust construction materials might have higher premiums.
  • Location: Areas prone to natural disasters like floods, storms, or fires typically have higher insurance costs.
  • Policy Coverage: Contents-only policies are generally cheaper than comprehensive coverage.

The Importance of Coverage:

While a security bond might cover minor damage, it's usually limited (often 4 weeks' rent).  Landlord insurance provides a safety net for more significant events. Here's why skipping insurance can be risky:

  • Bonds Have Limitations:  They don't cover major repairs or lost rental income.
  • Lease Clauses Offer Partial Protection:  While well-drafted lease agreements with clauses like "no smoking" or "required furniture pads" can help prevent damage, they can't guarantee it.

Landlord insurance offers peace of mind by protecting you from unforeseen events and potentially devastating financial losses.  If you rely on your rental income, comprehensive coverage becomes even more crucial.

The Claims Process:

By law, insurers must respond to your claim within 10 business days. However, major events like floods can cause delays.  While processing times might take longer in exceptional circumstances, insurers typically pay out legitimate claims. For example, despite the increase in complaints during the 2021-2022 floods, insurers still paid over $2 billion to affected customers.

What if Your Claim is Rejected?

If you disagree with a claim rejection, you can escalate it with the insurer or file a complaint with the Australian Financial Complaints Authority (AFCA).

Remember: Choosing the right landlord insurance ensures you have the protection you need, giving you peace of mind and safeguarding your investment.

Here's how a buyer's agent can help with your investment property journey:

  • Finding the Right Property:  They have a deep understanding of the local market and can help you find properties that align with your investment goals and risk tolerance.
  • Negotiation Expertise:  A skilled buyer's agent can leverage their negotiation skills to secure the property at a competitive price, potentially saving you thousands of dollars.
  • Streamlining the Process:  They handle the heavy lifting of the property search, saving you time and ensuring a smooth and efficient buying experience.

If you're considering entering the property market as a landlord, consider partnering with a reputable buyer's agent.  Here are some resources to get you started, including a helpful reference from a trusted source:

  • Buyer's Agency Australia: Explore resources offered by organisations like the Property Buyer's Agency Australia to find qualified buyer's agents nationwide.
  • Buyer's Agent Melbourne: Search online for reputable buyer's agents specialising in the Melbourne property market.
  • Buyers Agents in Sydney: Partner with a Sydney Buyer's Agent and unlock the full potential of your property investment journey.
  • Brisbane Buyers Agents: Brisbane's thriving property market offers exciting opportunities for investors.  Brisbane Buyer's Agents are your local market insiders, providing the expertise you need to make informed investment decisions.
  • Gold Coast Buyer's Agents: Look for qualified buyer's agents with experience in the Gold Coast property market.

By combining the expertise of a buyer's agent with the protection of landlord insurance, you can make informed decisions and safeguard your investment property for a more secure financial future.



 

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The Propertybuyer
Podcast

 
Sun 23 Jun '24
with Rich Harvey
Why Tax Depreciation Matters
 
 
Fri 14 Jun '24
with Rich Harvey
Tax Effective Property Investment Strategies
 
 
Fri 24 May '24
with Rich Harvey
Granny Flats: Boost Your Yields & Faster Mortgage Repayments
 
 
Fri 3 May '24
with Rich Harvey
Unpacking the Northern Beaches with Incredible Agents
 
 
Fri 29 Mar '24
with Rich Harvey
How to build a $7 Million Property Portfolio from scratch
 
 
Sat 16 Mar '24
with Rich Harvey
Why Invest in Melbourne?
 

 

Listen to many more
podcasts on our
Podcasts page.