An essential guide to landlord insurance

By Olivia Gee ·

While every variant of home and contents insurance provides security for homeowners, there are extra elements to consider when you’re not occupying those four walls yourself. 

We’ve laid out the details of landlord insurance so you can pick the best policy to suit your needs. But always remember the golden rule: check the product disclosure statement (PDS) of the policies you're considering.

It also pays to be aware of changing market conditions. Unforeseen economic and social circumstances may result in temporary or long-term changes in governance around tenancy agreements.

What is landlord insurance?

Landlord insurance is an insurance policy type that typically covers investors who are leasing out a property. What this includes will depend on the type of premises you’re renting out, your provider, policy and the level of coverage you chose. In Australia, it isn't a legal requirement to have landlord insurance as an investor, but it has become best practice in the industry.

What’s included in my landlord insurance policy?

Inclusions, exclusions and optional extras will differ between providers and policies, but you’ll want to investigate a few basic coverage areas. Tick off the ‘must-covers’ for your property and have peace of mind, then consider if location or other factors mean you require additional coverage.

Landlord insurance regular inclusions
  • Building and contents: These terms are regularly smooshed together, but you can elect coverage for each independently. Building insurance refers to the structure itself (roof, walls, doors, fitted kitchens) and will cover damages from fire, flooding, vandalism and theft. Contents insurance covers detachable items within the premise which you own as a landlord (internal blinds/curtains, carpets, light fixtures, kitchen appliances and more if you’ve furnished the place).
  • Rent default or other loss of rent: This involves rent loss due to an insured event. It could include a tenant failing to meet rental payments, the eviction of a tenant by court order, or the death of a sole tenant. Payouts can often take time to kick-in, which is why it’s a solid plan to hold a bond of around four-weeks rent. 
  • Public liability cover: If anyone visiting the property were to seriously injure themselves, perhaps by tripping on a tree root in the driveway or tumbling down the stairs, public liability insurance will often cover associated medical and legal costs.
  • Other legal costs: For landlords, this will generally relate to the fees you may incur if you require legal representation in the process of evicting a tenant by court order or making a legal claim for rental loss.
  • Malicious and accidental damage by tenants: Life happens, and your tenants or their visitors may cause accidental damage to the property. So, tenant damage is a common inclusion in landlord insurance policies. Policies will often have separate coverage for ‘malicious’ damage (like vandalism and theft) as well as the honest mistakes, so scope out your PDS for both.
  • Damage caused by a tenant’s pet: You may want to opt-in for this if you accept furry or feathered residents and the claws they carry. Keep in mind, some states like Victoria now have laws regarding a tenant’s right to have a pet while renting. Requests can only be denied if deemed unreasonable through a Victorian Civil and Administrative Tribunal order.
  • Disaster-prone areas: If your property is in an area prone to flooding or bushfires, you’ll want to ensure you have enough coverage for damages as well as lost rent if a disaster makes the property unlivable. This may come at a higher premium, as insurers will also be aware of these high-risk areas.
  • Change of locks after a claim: Has your previous tenant left with your keys after defaulting on their rent or being evicted? You may want to change the locks for the security of future tenants and the property.

More to consider when choosing landlord insurance

Choosing the right level of cover depends on what kind of property you are leasing as well as your priorities as a homeowner. You should take into account any changes to the home – like renovations or additions – and consider the monetary and intrinsic value of any part of the property which could potentially be damaged in the course of renting it out. 

Insurance for apartments or units will be different than for houses, as the main structure is part of a body corporate. This means you may want to look into strata title protection. It gives landlords extra security if the body corporate hasn’t sufficiently insured the building. Have you made building upgrades within your apartment making it more valuable than the original insurance assessment? Perhaps you’ll want to look into this additional coverage.

Striking a balance between premiums and excess can be a complex decision. Increasing the excess (the out-of-pocket cost you commit to paying on claims before the insurer forks out cash) often means lower premiums and vice versa. Find a healthy middle ground by first determining what aspects of your property are worth. Then consider if you want to increase the premium to cover that value, or if the excess on particular items won’t cover the cost of replacing it yourself.

Your premium could be tax deductible according to the Australian Taxation Office (ATO). Building, contents and public liability insurance is claimable, since it falls under investment maintenance and management expenses. It’ll be more difficult to rationalise optional inclusions as claimable.

What about commercial landlord insurance?

Commercial landlord insurance

It’s all in the name. Commercial landlord insurance is for property investors leasing out a space to a commercial business. Many of the same principles apply as the residential scenario regarding inclusions, exclusions and other considerations. 

The main differences relate to the nature of the business operating in the space. If your premises includes business-use machinery and fixtures, like in-built fridges and cooking appliances in a restaurant, you may want to cover these specifically under contents for breakdown and theft. Since rental payments are linked to the viability of the business, this is also something to consider when taking on tenants or purchasing a property for use in a specific industry.

Remember: Commercial landlord insurance is very different to business insurance packages or commercial property insurance, which should be used by business owners who own and operate within a property.

Why might a landlord insurance claim be denied? 

Your claim may fall through for any number of reasons, but these will generally be linked to a clause in your policy, so don’t let that PDS out of your sight! The case may be that you didn’t choose to include something in your coverage, or there are certain stipulations around your actions pre or post-claim.

For example, if you need repairs on your roof and ceiling after storm damage (which you’re covered for in this scenario) consult your provider before you start calling building companies. Your policy may include a requirement for repairs to be undertaken in a certain timeframe or by a specific company.

Other claim denials could be based on your home being unoccupied for a certain amount of time or if you’ve failed to sufficiently maintain the property. This could lead to events like tree roots cracking foundations, termites damaging the building and mould spreading throughout the property, which probably won’t be claimable in this scenario. 

While a good landlord will want to make life easier for their tenants, be mindful of agreeing to reasonable requests which may not be legally supported by your insurer. This could be accepting a rent reduction request if your tenant is facing financial hardship. In many cases, insurers will have a section in policies stating they will only cover the most recently negotiated rent. If you’ve accepted your tenant’s request to pause rental payments temporarily, you’ll get nothing from your insurer as the last negotiated rent was $0.

Other ways to cope with lost income as a landlord

A pause to rental cash-flow could hit your wallet particularly hard if you are still paying off your mortgage. If you find yourself in a situation where insurance doesn’t cover the cost of lost rental income, explore alternatives that could ease this financial burden. 

Start by investigating financial hardship measures offered by your lender. This could be allowing additional redraws from early repayments or the introduction of an offset account to reduce interest costs. They may also offer fee waivers, smaller loan repayments options, or even a home loan repayment holiday

If you are able to pause your repayments entirely, keep an eye out for the term ‘interest capitalisation’. If this is applied, interest will accrue throughout the agreed upon term of a repayment holiday, and you’ll be required to cover it once you recommence home loan repayments. This will see you pay more across the life of the loan.

Refinancing could also be an option. If you’re an eligible borrower, you could save a considerable amount of money by refinancing with a lender offering more attractive rates or flexibility, and potentially offset the loss in rental income.

How to find the best landlord's insurance?

A great way to begin your hunt for a landlord insurance policy to suit your needs is with the Mozo Experts Choice Landlord Insurance Awards. An award-winning policy is always one worth considering.

In our search for the 2020 Landlord Insurance winners, Mozo's team of expert judges assessed 25 policies across 2,000 customer quotes in terms of value for money and the highest quality cover. If you want to utilise the selection criteria for your own research purposes, you can check out how they crunched the numbers in the awards methodology report.

FAQs

How is landlord insurance different to home insurance?
A major factor is that landlord insurance can cover loss of rental income, while home insurance doesn’t. It won’t be claimable in every circumstance and can take time to be paid out, so make sure you read the details around this in your PDS.

Landlord insurance will also often cover additional legal costs, generally for representation throughout the process of evicting a tenant by court order or making a legal claim for rental loss.

How do I make a landlord insurance claim?
Like most insurance products, this involves contacting your insurer – with your policy details at hand – and beginning the claims process in whatever format they offer (online, over the phone).

Photos or other proof of damages will help bolster the perceived validity of your claim, as will bank records in the case of rental loss. If the claim relates to a theft, make sure you file a police report and also have those documents or details to share with your insurance company.

If repairs are necessary, make sure you consult your insurer on how to go about organising this. Go through any nominated inspectors and providers to get work done if that condition is stipulated in your insurance policy. If your claim needs to be escalated legally, follow your insurer’s guidance.

Is landlord insurance tax deductible?
Depending on your circumstances, it can be. Building, contents and public liability insurance falls under investment maintenance and management expenses, and therefore is claimable. Optional extras may not qualify for this.

Do I really need landlord insurance?If you’re renting out your home to strangers, there are inherently extra risks. No matter how thoroughly tenants are assessed, you never know how they might inadvertently or maliciously damage your property. Plus, landlord insurance covers the unforeseeable events all owners would want their properties covered for.

Olivia Gee
Money writer

As one of Mozo’s money writers, Olivia Gee shares her research and insights across banking, insurance and property to help readers save. She loves getting stuck into a story, unveiling all the facts, breaking down stats and drawing on personal experiences - this is what drives her as a journalist. She has a double degree from the University of Wollongong, with a BA in Journalism as well as Media and Communications.