Inflation. Rising interest rates. Utility prices. Groceries. Petrol… The list of price rises for essentials seems endless. And yes, the cost of insurance is also higher.
Most of us have several insurance policies (for our homes, cars, health, pets, lives, incomes) and it may be tempting to look at dropping the comfort and security of this cover to save money.
Perhaps this is how some of your clients are feeling about insurance on their investment property. However, cancelling their insurance policy could prove to be a false economy.
As a property manager, your landlord might think…
“I don’t need insurance because I’ve got the bond money.”
Reality: A bond only covers four weeks’ rent and if there’s major damage to the property and/or unpaid rent, that bond is going to be drained and the landlord left to foot the bill.
“I don’t need insurance because there’s already building/strata insurance in place.”
Reality: Neither building nor strata insurance will cover the landlord’s contents or tenant-related risks like loss of rent. Strata insurance also doesn’t cover the landlord’s legal liability inside their unit.
“I don’t need insurance because if you’re doing your job properly, I won’t need it,”
Reality: No matter how good a property manager you are, there are just some things that are beyond your control – like bad weather, accidents, issues with tenants. Having landlord insurance is a safety net if things go wrong.
What can really go wrong?
If you think your landlord still needs convincing, here are our top five reasons why landlords need insurance:
1. Peace of mind is hard to find
Owning an investment property, just like any other property or asset, comes with risks. And it’s stressful.
While some are lucky enough to never have to make a claim, the reality is that many people do claim on their insurance, and they can sleep easier knowing it’s there.
At EBM RentCover, we settled about 6450 claims last year with a value of approximately $33.5 million. That’s a lot of landlords who would have otherwise been out of pocket!
2. You never know when a rainy day will come
It is predicted that two-thirds of our country will receive above average rainfall during spring this year. And in some parts of the country, when we hear about rain, we fear floods.
Damage caused by weather events is a common property insurance claim – not just landlord insurance but home and contents, business premises and strata buildings too.
Landlords can safeguard their investment against a range of natural disasters and risks including storms, hail, floods, cyclones and bushfires, by having insurance.
Also, with the right insurance, landlords can also be protected against loss of rent if their tenants have to move out because of the damage caused by wild weather.
3. Tenants can be unpredictable, and criminals have no respect
Even the best tenants have things happen in their lives that can have an impact on their tenancy – including job loss, relationship breakdown, ill health or death of a partner.
Despite their best intentions, the tenants can find themselves in arrears and unable to catch up. With the right cover in place, landlords can recoup rental losses.
On the flipside, some tenants turn out to be far from ideal from the get-go, with costs adding up due to rent default, squatting, malicious damage or illegal activities at the premises – for example, finding the rental has been used as drug lab.
NOTE: EBM RentCover is one of only a few landlord insurance providers that offers cover for this.
It’s also a sad fact that break-ins are common. Not only can the building be damaged, but the landlord’s contents can be damaged or stolen. And if the landlord failed in their duty of care (e.g. failed to repair broken locks), they can also be liable for any losses suffered by their tenants.
Without insurance, the landlord will have to pay to repair or replace what’s been lost.
4. Accidents happen
The thing about accidents is we simply can’t predict them. Whether it’s a tenant accidentally spilling wine on the carpet, a water pipe bursting or even the home being razed by fire, accidental damage can, and does, happen – and it could cost landlords thousands of dollars if they are uninsured.
With accidents also comes the risk of legal liability for landlords, which many don’t realise.
Landlord insurance provides the owner with legal (public) liability cover.
If someone is injured on the premises, or has their property damaged, and it’s the landlord’s fault, then the landlord could face compensation claims stretching into the hundreds of thousands of dollars. Landlord insurance can provide cover stretching into the millions.
5. Lawyers charge handsomely
While it’s a “last resort” dispute resolution option, there are times when a landlord may need to go to court or appear before the tribunal over a loss of rent matter.
And anyone who’s hired a lawyer knows that the fees can be eye-watering. With the right landlord insurance, legal expenses may be claimable.
Legal expenses may also be able to be claimed for costs associated with going to court or appearing before a tribunal over a loss of rent matter.
To sum it up…
Landlord insurance is specifically designed to offer property investors protection against a range of common risks.
While other insurance (e.g. home and contents, building or strata) might cover some property risks, it’s usually only by having comprehensive landlord insurance that risks unique to rentals are covered – and it’s these tenant-related risks that are the most common reason why landlords need to make insurance claims.
The bottom line is that landlord insurance should be an automatic part of every property investor’s portfolio. Insurance is an investment in peace of mind.