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:
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.
The cost of landlord insurance varies depending on several factors, including:
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.
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.
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.
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:
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:
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:
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:
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:
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.
To have one of our friendly Buyers' Advocate's contact you, click here to:
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