Questioning whether landlord insurance is a worthwhile investment? Maybe you have had a policy for a year or two and have not needed to make a claim. Lucky you! While that might seem like a couple hundred dollars down the drain, landlords never really know when disaster might strike. And when it does, that is when the true value of a policy is discovered…
We know insurance can sometimes feel like a waste of money. The truth is, no one really needs it, until they do. However, when involved in the unpredictable, it is important to have protection for an investment.
Imagine this scenario:
Your tenant has been living in your property for a few years and the two of you have built a strong relationship.
The tenant has a perfect record of paying rent on time and has never done anything that constitutes you making a claim. Because of this, and to save money, you decide to cancel the insurance on your property.
Unfortunately, two months later, the tenant loses their job and income. And, the first thing they stop paying is… rent.
What is meant to be a cost-saving decision, can sometimes turn into an expensive mistake. This is just one example why retaining cover on an investment property is important. Here are a few more…
Weather – it is so unpredictable
Damage caused by weather events is a common property insurance claim, and by retaining cover, landlords can safeguard their investment against a range of natural disasters and risks including storms, hail, floods, cyclones and bushfires.
DID YOU KNOW??... In the past 18 months, the Insurance Council of Australia has declared seven catastrophes – with six of them relating to natural disasters (the seventh was COVID-19). Collectively, the bushfires, hailstorms, floods and storms have resulted in more than 295,000 insurance claims with an insured loss valued at around $5.4 billion.
As wild weather conditions continue throughout the disaster season (November to April), bringing cyclones, severe storms and bushfires, property owners should consider the risk of being financially exposed to substantial damage or total losses by being uninsured.
Tenants – they are also unpredictable
As you will have read from the example above, you cannot control a tenant’s job loss… or a relationship breakdown, or their health. Around half the claims EBM RentCover receives against landlord insurance policies concern a tenant-related matter like loss of rent, damage and theft by the tenant. Investors who currently hold landlord cover will usually be protected for these risks. EBM RentCover policyholders are protected, including for loss of rent, so long as they meet their legal and contractual obligations and are claiming for a loss covered by the policy.
Isn’t the bond enough to cover tenant related risks? This is a common myth. In many cases the bond that has been collected will not be enough to cover the expenses if a tenant refuses to pay rent, damages the rental property and fails to make good on their obligation to repair the damage, or steals contents from the premises. This leaves the landlord to foot the bill and then chase the tenant for reimbursement through the courts, which can be an expensive proposition.
TIP: Tenant-related losses are usually not provided for in standard home and contents or building policies.
Insurers can cease offering cover at any time
Because of COVID-19, many landlord insurance providers exited the market and stopped offering cover. This meant when the pandemic first hit, landlords that didn’t already have protection may have found it difficult to seek cover. With this in mind, owners who hold a landlord insurance policy would be wise to think very carefully about cancelling the policy – they may not be able to secure the same level of cover for a second time.
- Rent default – protection if a tenant breaks their lease or faces hardship.
- Loss of rent – protection for when a property is uninhabitable following tenant damage or insured events (such as fire, storm and flood).
- Tenant damage – protection when malicious, accidental or intentional tenant damage occurs at the investment property.
- Pet damage – protection in case a tenant’s pet damages the property.
- Insured events (including some acts of Mother Nature) – protection for damage to contents (Ultra), or building and contents (Platinum), by insured events including fire, storm, flood, cyclone and earthquake.
For a reminder of all policy features, read your product disclosure statement here.
Your mortgage my be impacted
If there is a mortgage over the investment property, the owner may find that their loan provider requires them to obtain and maintain landlord insurance as a condition of the loan.
Leaving an investment property uninsured may result in the landlord breaching their contractual obligations.
You may currently have legal liability cover up to tens of millions of dollars
A key feature of landlord insurance policies is legal liability (also known as ‘public liability’ or ‘liability to others’) and cover limits are usually in the tens of millions of dollars.
Landlords have a responsibility to provide a safe and liveable property for tenants and anyone else who visits the premises. This means they must take care to avoid foreseeable harm to tenants or other visitors. Harm could be a physical injury or damage to the person’s property. If the landlord is negligent in this responsibility and someone suffers a loss as a result, the landlord will usually be held liable and may be required to pay compensation.
Case in point:
A Melbourne tenant received $300,000 in compensation from his landlord after he sustained serious injuries when the balustrade of a balcony collapsed at his rented property. The tenant sued the landlord, and it was found that the balcony had not been properly maintained or inspected. The tenant’s lawyer alleged that “the landlord had been warned by previous tenants that the timber of the balcony was rotting, however the landlord failed to ensure that it was adequately replaced”. The judge concurred and awarded the tenant compensation as the landlord was aware of the hazard but failed to take action to rectify it.
Legal liability provisions in a policy cover the legal costs and any payouts for which the policyholder would be responsible if they are found to be legally liable. Without insurance, the landlord has no cover for liability incidents that occur at the rental and would face any legal and compensation bills on their own. Food for thought: To date, the highest personal injury claim in Australia for one person was an eye-watering $19 million… and half of that was legal costs.
Still tossing up whether you need to renew your landlord insurance policy? Call the EBM RentCover team on 1800 661 662 to chat about your options. If you need us, we are here.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions.