Five things to consider when insuring a rental property
Landlord Insurance has saved the day on multiple occasions, covering for loss of rent and tenant damage. Some of the causes include tenants abandoning their rental, a tenant was arrested, and due to methamphetamine contamination. What I am trying to say here, is that you don’t need it, until you need it. So best to have it in place, and employ a good property manager who knows how to use it.
Insuring a rental property is a little different to insuring the house you live in. It is important to understand the risks you can get cover for so that you can make better investment decisions.
1. A building insurance policy may also offer you landlord insurance cover.
It is important to let your building insurer know that the property will be tenanted, and not owner-occupied. As the cover will differ and the premiums and excess will differ. Remember that building insurance will not usually cover for contents, or your tenants belongings. As a rule of thumb it will only cover things that are fixed to the house like a fitted kitchen, bathtub or carpets.
2. You can “add on” specific landlord cover.
You usually have the option to add on specific landlord cover from your building insurance cover, or you can take out seperate landlord insurance to run parallel with your building insurance. Landlord insurance generally covers damage caused by events that are more specific to rental properties, like malicious damage caused by tenants and loss of rental income.
There was an update to the residential tenancies act on the 27th of August 2019 which affect the liability residential tenants have to landlords for accidental damage. Specifically, landlords can now seek recovery from tenants for accidental damage. Subject to a cap of the lesser of the landlords policy excess or 4 weeks rent.
3. Most insurance wont cover deliberate damage, this is not the case with landlord insurance.
Normal insurance policies are typically designed to cover accidental damage or accidental loss or theft of items, and not deliberate damage. But landlord insurance polices offer cover for deliberate or malicious tenant damage to your rental property, and cover can be for up to $30,000.
If your rental property was accidentally or deliberately damaged by a tenant to the point where you have lost rental income due to the damage, you can claim for the cost to repair the damage and claim for loss of rent during this period. Landlord insurance can be a very powerful tool in your investor tool box.
4. Most insurance policies are designed to cover the BIG stuff.
Insurance policies are designed and priced to cover the big stuff. Stuff that would cost well over the price of your insurance excess. The excess is designed to make the smaller claims not worth while.
For example, over time tenants might cause minor accidental damage – like multiple stains on the carpet – that add up to you wanting to replace the carpet. But the way most insurance policy’s work is that each ‘event’ of damage incurs its own excess. So a number of individual stains over many months would probably incur a higher total excess than the claim is worth (unless you can prove the stains were the result of a single incident).
This is where specialised landlord insurance will provide better cover then an add-on landlord cover from your main stream building insurance provider. As specialists like REAL Landlord Insurance will treat multiple stains on the carpet as one claim if they were all discovered at the same time by the landlord during an inspection. Shopping around and talking to an expert could save you thousands later on down the track.
5. As a landlord you will have to do your part in mitigating risk.
While landlord insuarnce is designed to protect your investment. It also has terms and conditions that require the landlord to take good care of their rental property.
Some basic landlord obligations include taking proper care in vetting tenants, doing reguler property inspections, actively monerting rent payments, and keeping on top of regular maintenance. These actions will help you prevent problems and take quick action when something comes up so you will minimise any loss. Keeping record of these activities is essential when making a claim, as proving these landlord obligations have been met are the first step in a successful landlord insurance claim.
If your tenants accidentally damage your property you may be able to recover your insurance excess from them, but you will need to let them know what your excess is, and provide them with a copy of your insurance policy. This information is now a requirement for every tenancy agreement. Claiming back any excesses needs to be handled between you and your tenant – your insurer won’t be able to get involved.
6. What cover you should expect from good landlord insurance.
I know the title of this blog is Five things to consider when insuring a rental property. But because you have read this far, I’ll include a bounce 6th tip, a list of things I have found to be covered by various kids of landlord insurance over my 10 years as a property manager.
What to expect from good landlord cover:
Loss of rent
Accidental tenant damage
Deliberate tenant damage
Free glass cover
Hidden gradual damage
The excess I would expect to pay is 1 weeks rent
My last point is to avoid a high excess for the benefit of lower premiums. When things go wrong with tenants, the loss will usually be within the vicinity of 2 to 4 weeks rent, and this is if you have a good property manager. It could be more if poorly managed. Thus, If your excess is $1000 or more, then claims won’t be worth it.
I hope this helps you select the right cover. I am not an insurance expert, and I recommend talking to one. I am a property manager, and as a property manager I recommend looking into REAL landlord insurance I don’t get anything from them for this mention. I recommend them because I have found them to be very easy to work with, and their cover is better then mainstream building insurance cover whom have a landlord ad-on.
If you have any questions, please don’t hesitate to contact me.