Finding quality landlord insurance coverage is harder than ever but in this decimated market there are still helpful measures to take to protect your investment property income.
When Covid was responsible for a deluge of rent-related insurance claims, 78 per cent of Australian insurers responded by withdrawing from selling landlord insurance policies altogether.
The claims, coupled with state and territory governments announcing nationwide rental relief via an eviction moratorium, changed the landlord insurance landscape, possibly forever.
It has also made the task of securing insurance for investment property tenancy more fraught than ever before.
Canstar Landlords Insurance expert Steve Mickenbecker said insurers did allow existing policies to continue but stopped selling new policies, while most also declined to renew existing policies.
“The market was absolutely decimated in that period and landlords that didn’t have insurance had trouble getting reasonable cover – their shopping list was much reduced,” he told Australian Property Investor Magazine.
Of the 22 per cent of insurers who did stay in the market, just 10 per cent of them continued to cover loss of rent, according to Canstar research.
Bold claims, fine print
Today, landlords are strongly encouraged to pay close attention not just to inclusions but exclusions as well, especially to the mainstays of landlord’s insurance – loss of rent and damage or theft by tenants.
These essential items may only be options in a policy, and in the last 12 months some rental default cover policies have also changed their claim limits.
“That is, increasing or decreasing the number of weeks of rent to be paid and/or the dollar amount,” Mr Mickenbecker said.
“You’ve got to look at how much you’re covered for, what dollar limit, what expenses will the policy actually pay.”
EBM RentCover managing director Sharon Fox-Slater added that landlords could benefit from having cover that extended to legal expenses.
“If something does go wrong, there can be lengthy and costly legal disputes.
“When a tenant does the wrong thing, the matter may need to go to court to sort out disagreements.”
Around half the claims we receive concern tenant-related such as loss of rent, damage and theft by the tenant.
– Steve Mickenbecker, Canstar Landlords Insurance expert
The bond, for example, is not enough to cover tenant related risk.
“This is a common mistake, as in many cases the bond will not be enough to cover 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,” Ms Fox-Slater said.
This leaves the landlord to foot the bill and then chase the tenant for reimbursement through the courts, which can be an expensive proposition.”
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, which 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,” she said.
“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,” Ms Fox-Slater said.
It is what Mr Mickenbecker describes as life-changing and why closely reading policies and correspondence sent by the insurance company is essential.
“Claim rates are not high but the payout is massive if a terrible event occurs and life-changing if you don’t have insurance cover it.
“One of the most common mistakes landlords make is they don’t read a policy until something’s gone wrong.
“From my own personal experience, I was living between neighbours, both of whom were watching the flood waters come up in Brisbane, and it was only then they thought, ‘oh we’d better read the insurance policy’, only to find out it didn’t cover riverine flood, it only covered storm water flood.
“People too often don’t read or understand what’s in their policy.
“Every time your insurance company writes to you should look at what changes, if any, have come – you don’t want to find out at claim time, you want to find out up front,” he said.
That is also true of the moment a property settles.
“There are many misconceptions about landlord insurance and confusing information about when the policy should be placed,” Ms Fox-Slater said.
“The minute you enter into a contract of sale, you have an insurable interest in the property and cover should be taken out straight away.
“If managed correctly, an investment property can prove to be a financial dream, however, renting out a property comes with a range of risks.
“Without the right insurance in place, that financial dream can quickly turn into a financial nightmare.
“You cannot control a tenant’s job loss, a relationship breakdown, or their health.
“Around half the claims we receive against landlord insurance policies concern tenant-related such as loss of rent, damage and theft by the tenant, and investors who have landlord insurance will usually be protected for these risks.”
As a starting point, Canstar run a national and state award system for insurers who perform well across the board.
“When you take out a policy you’ve got to your homework and get prepared,” Mr Mickenbecker said.
“Get a quote specific for your property as well.
“A good starting point is to look at Canstar’s national award winners and the five-star products and use that as your starting point.”
The bottom line for a landlord, Ms Fox-Slater said, is the importance of protecting your asset and the income that is derived.
“A specialist landlord insurance policy is an important part of an investment strategy,” she said.