Looking at landlord’s insurance policies may seem daunting because they all seem to offer different things. But there are four main types of insurance to consider as a landlord. Your decision is whether to be covered for just one, a combination, or all of these. So why have insurance as a landlord? Putting it in terms of chocolate, no one ever bought a packet of Tim Tams and then just left them open on the kitchen bench. If you value your new property as much as your confectionery, then it’s worth taking the time to consider your insurance in detail.
Acts of nature
While meteor strikes or the kinds of gales seen in the 1996 film Twister may not be something you’ve ever had to worry about, you only need look at the 2010 floods in Queensland to see that the growing frequency and severity of weather events in both rural and metropolitan areas is an important thing to consider when shopping for insurance policies.
Many of the larger insurers will cover against not only the three big ones (storms, flooding and fire) but also the more apocalyptic, less likely weather events. It may be okay to be covered for a tsunami, but if indeed your property is situated close to the coast, it is worth checking to see whether the policy you are considering covers against ‘movements of the sea’. If not, consider the more likely event of sudden erosion caused by freak waves, as happened in Sydney this year. Is this considered a ‘movement of the sea’ and is it covered in your policy?
Even if you are inland, you may see that you are covered for ‘floods’ but does this include ‘storm surges’? Many insurers in northern Australia will include storm surges, but if your property is down south, check to see whether these are covered. Evaluate where your property lies in terms of elevation and local drainage, it may be that the chances of a storm surge are close to nil.
Many insurers will offer separate policies for building insurance and contents insurance. So the first thing to decide is whether you want to go with an insurer that includes both within the same policy. If you want cover for both of these then it may be less hassle and paperwork to go with a single policy, but in this case be sure to read the fine print.
Building insurance covers your property from damage to most structural fixtures, both inside and outside the home. Check whether your policy covers the following: plumbing and piping, cables, heating systems, fixed appliances and exterior fixtures (such as awnings).
As mentioned above, some policies will give the option to include cover for contents within the one policy. Your decision should depend on what appliances within the property are owned by you, the landlord. Do you want to be covered against damage to items not considered fixtures? These can include items such as carpets, curtains, light fittings, furniture, appliances? Some policies may cover against what is called ‘malicious damage caused by tenants’. Yet, it’s important not to rely just on this. Accidental damage may not come under the policy. Furthemore, you may not want the legal headache of trying to prove that damage was intentional. The difference of one or two hundred dollars a year may be well worth avoiding legal fees in the future.
Rent Default insurance
This is a big one. But that’s not meant to sound daunting. You may come across the phrase ‘cover for loss of rent’. You may find yourself in the situation where you are not being paid rent. This could be because of damage done to your property (environmental damage for instance) or because the tenant is no longer paying rent (which can be for a variety of reasons). Policies will differ in the length of time that they will cover you while you are not receiving rent. Some cover up to a year but others may only cover up to 12 weeks. Be sure to read the insurer’s current PDS (Product Disclosure Statement). For instance, one insurer may claim to cover you for up to 52 weeks, but their PDS might stipulate a range of scenarios where your cover could be limited down to even just two weeks.
Be aware of your financial situation and whether you can cover the loss of rental income. This will help you decide how long you want your policy to cover you. More than anything be sure that your cover for rent default includes the main eventualities:
- Eviction of your tenant by court order
- Unexpected death of tenant
- Default (your tenant refusing to pay rent)
- Your tenant claiming a hardship order