Insurance
6 min read
Author: Tina List
Tina List, Client Relationship Manager and property investor
Landlord insurance covers you if certain bad stuff happens with your rental property.
Generally, it’s bought as an add-on to house insurance. It protects you for specific tenant-related issues.
Landlord insurance isn’t compulsory. Property investors already pay a lot of money for insurance, so some think: “Do I really need to pay for landlord insurance?”
In this article, you’ll learn what landlord insurance is, if it’s really necessary, how much it costs and the amount of protection it really offers.
Simon, from Axico, says basic landlord insurance starts at around $200-$400 a year.
But a more comprehensive cover may be much higher than that. Just like any insurance policy, what you pay will depend on:
Usually, it’s an all-in-one deal. So you buy the landlord insurance add-on as part of your home insurance package.
First, let’s get into the pros and cons of landlord insurance.
Landlord insurance is optional; it’s not compulsory and it’s not a legal requirement.
This means if you don’t want to pay for it, you don’t have to. That said, rental properties are more likely to have damage or maintenance problems.
Unfortunately, tenants don’t care as much as you about the long-term durability of your property.
On top of that, your entire investment strategy likely hinges on you earning rent from a tenant. So if your tenant does a “runner”, you might be left in the lurch ... with two mortgages to pay (your own and your rental).
That’s why the peace of mind that landlord insurance gives can be worth the extra cost. It’s more comprehensive than standard house insurance and you get a lot for what you pay for.
It covers you for most things that can go wrong (more on this below). But you’ve got to carefully read the fine print to know what you will and won’t be covered for.
For instance, some policies will cover unpaid rent, whereas others will argue that’s a risk you should have managed yourself.
So, be extra careful about the wording in your policy. If you’re unsure, work with an insurance broker to make sure you’re getting the best deal.
Generally speaking, landlords insurance will cover you for:
As a landlord, you might provide things like the oven, dishwasher, heat pump, carpet and curtains. These can all be insured.
If something bad happens to the property, you can then get a payment to cover replacing these appliances and chattels.
Tenants are still responsible for their own furniture. So this is cover for you, not your tenants.
This is fairly self-explanatory. If your tenant gets unruly over an eviction, and they take it out on your property, you can get a payment to cover the cost of some of the damage.
If there is a flood or fire you might not be able to rent your property out for a while. That means you don’t have rent coming in, but you still have a mortgage to pay.
Or what happens if your tenant leaves without notice? In other words, they do a “runner”. The insurance company can start to pay that rent for a time. But how much you get paid depends on why you’re no longer receiving rent.
If it’s a natural disaster the insurance will cover the rent at the time of loss. So, if rent was $600 a week, that’s what you’ll get. This generally covers you for up to a year, but it can also be capped at an amount e.g. $50k a year.
If the loss of rent was because the tenant stopped paying, insurance can cover up to 12 weeks. This is arguably the most valuable part of landlord insurance.
Often your landlord insurance will not cover damage by the tenant’s pets. This is excluded from most landlord insurance policies, but if you’re talking to an insurance company (or an insurance adviser) it’s worth mentioning as a possibility.
Some landlord insurance will pay out for emergency repairs or lock and key replacement.
To get landlord insurance you can use an insurance adviser, or go directly to an insurer.
If you do go direct, you’ll have to provide details for a quote.
Remember, be sure to let them know it’s a rental. That’s because landlord insurance is over and above house insurance.
It’s important to note that if your property is part of a residents’ association or body corporate you may already have landlord insurance included. However, always confirm this with your association or body corporate manager.
An insurance adviser can discuss your options across multiple insurance providers. So, you’ll probably get a more informed deal if you go with a broker.
The policies for landlord insurance chop and change, depending on who you go with. So, if you assume you’ve been covered for something, it might not be written in the fine print. Then when it comes to claim time you realise you haven’t got that covered.
Insurance advisers are great at looking at all the risks, and will help you find the best policy for you. That way there are no hidden surprises.
They are also free.
They get paid commission by the insurance companies they work with. So, they work to get the best deal for you (not for the commission).
Many investors say the cost of landlord insurance is better than the risk of not having it. For example, a scorned tenant could cause thousand of dollars worth of damage.
Or if you’re tenant ghosts you and does a midnight “runner”, you could be left to cover the cost of more than one mortgage. Landlord insurance saves you from this financial headache.
But ultimately you’ll make the decision.
If you are renting to potentially higher-risk tenants (e.g. students or social housing) you may find it even more beneficial. So yes, it’s another expense, but most property investors would say it’s worth it.
Tina List, Client Relationship Manager and property investor
Tina List is a Client Relationship Manager with a Financial Adviser qualification. As a property investor herself in New Zealand, Tina brings firsthand experience to her clients. Originally from South Africa, she has a background in the Finance and Insurance industry.
