Landlord Insurance: Worth a bit of pocket now to not have empty ones later

You’re ankle deep in water, the washing machine broke at your rental property and took on water for hours while the tenant was at work. The apartment below is damaged, your carpets need replacing among other repairs and it will cost around $11,000. Without landlord insurance - are you ready to cough up thousands to fix this?

This was the case for a landlord in Canberra, luckily with proper landlord insurance the owner had the finances remedied within days.

It is vital to have your financial position covered when renting out your home. If a significant event arises like the one outlined above, then you may be facing some serious money demands. Most owners will have worked hard to achieve their investment property so it is sensible to have it protected.

Things just go wrong sometimes – fixtures and fittings can break, natural disasters may occur, electrical faults spark up trouble, and tenants may have a cash shortfall. Tenant theft or damage by them or their guests can also create issues. Ensuring these missing payments are covered is worth the few hundred dollars a year in comparison to week’s worth of rent that may fall into arrears.

Relying on these things not happening is impractical when the levy can be so pricey.

Every policy will be different and what to look for depends on a few factors: common risks to your property, specific risks unique to your property, hazards prone to the area (e.g. surrounding bushland increases likelihood for bushfires), strata insurance (if your property is on a strata title they may be able to source from the Body Corporate), and liability insurance (in the event a tenant or guest injures themselves on your premises).

Let’s say you have insurance and disaster strikes but you are denied your claim. Generally the reasons will be in a clause in your policy, and could be due to non-inclusions made by you, or certain conditions that weren’t met pre or post-claim.

Monika Minko from Property Management, says rejection is commonly due to a matter of time sensitivity. She says thorough research on the right insurer is the way to go.

“90% of rejected claims are often with insurers that do not specialise”

She says even banks can offer you basic landlord insurance along with your home insurance, but this may not cover all of the nooks and crannies that can catch you out.

How much does it cost?

Price depends on policy – insurers will measure by weighing up the risks based on location, materials of the property, local crime stats and disposition to natural disasters. The more expensive the policy the less your rental income BUT the greater the ease of mind should anything occur.

Conversely, cheaper policies will bring you more profit on a regular basis but are unlikely to give you much help if an issue presents.

But Monika says ‘for the sake of around $400 a year… it is worthwhile’.

Why haven’t insurers paid you out?

We touched on a few reasons earlier, here are some more to be aware of.

Weather events – This is an embargo restriction inhibiting people from buying a policy when they know a disaster is impending. Insurers will embargo periods so they are not taken advantage of for duration of a threat. It also can’t be purchased after a loss has occurred.

Building defects – These are not risks typical to investment properties – they are construction/design issues. Responsibility is with the architect or engineer for failing to meet standards, basically  insurers won’t cover something that is already broken.

Tenant repairs – Risk of property damage or bodily injury increases when tenants DIY repairs themselves and this is generally not covered.

Tenant contents – A common misconception is that they cover tenant possessions, it covers what is owned by the landlord for the purposes of letting the property not that of other parties.

Wear and tear – General wear and tear of the property is not covered, unless the result of an accident or malicious act.

Mould – This is the responsibility of landlord and tenant depending on the cause. It can be dealt with quickly and is not covered by insurers.

Market conditions – Insurers do not cater for market changes e.g. price drops will not constitute cause for cover.

Over-investment in features – Sometimes insurers won’t accept a clam if it is an excessive repair for what the feature is. Monika says a client had this exact problem, where large pot plants on an expensive timber floor caused marks and moisture damage. Leaving the flooring to be replaced and costing over $7,000.  Unfortunately, the insurer only agreed to pay half the cost.

What can you do about it as a landlord?

You can source measures offered by your lender. Options may include additional redraws from early repayments or opening an offset account. Some may also waive fees, allow smaller loan repayments or even a home loan repayment holiday, which allows you to paused your repayments when you experience financial difficulty.

But beware – interest capitalisation is a term that may appear when pausing your repayments and will accrue interest throughout the agreed upon term to pay for later.

Ultimately, if related to tenant damage, absence of payment, theft etc. you can take the matter up with the ACT Civil and Administrative Tribunal. For further reference see Part 4 of the Residential Tenancies Act 1997.