As a property professional you know the value in your landlords having the right insurance cover to protect their investment.
But, no doubt, you’ve come up against quite a few misconceptions about the cover and its value.
Over the years I’ve heard some very interesting ‘facts’ about landlord insurance.
So, I am setting the record straight and sharing my top 12 misconceptions about landlord insurance.
Landlords don’t need specialist insurance because they have home and contents cover.
While a standard home and contents policy might respond to property damage from an insured event, it is unlikely to respond to loss of rent or tenant damage, which are two common claims landlords make on their insurance.
Landlords don’t need specialist insurance because they collected a bond.
Claims often stretch into the tens of thousands – far more than the bond – and sometimes the money lost to rent default can’t be recovered.
Landlords don’t need specialist insurance because they have great tenants.
Even the best tenants (including family and friends) can find themselves in a situation where they can’t pay their rent – unemployment, illness, divorce/separation, death.
Damage from accidents can and does happen, no matter how careful tenants may be.
Landlords don’t need specialist insurance because nothing will happen to them.
No one needs insurance, until they do. The truth is, letting property comes with risks.
Some risks can be mitigated through good management, but insurance is about protecting against the unpredictable.
The weather is unpredictable and thousands of claims are lodged each year for damage caused by bushfires, cyclones, floods, storms, rain and hail.
Tenants can be unpredictable and tenant-related losses are the top reason why landlords claim.
Accidents are unpredictable and cover includes legal liability in case someone is injured or suffers a loss while on the premises.
The world can be unpredictable. Yes, I’m looking at you, Covid-19.
Landlord insurance is too expensive.
Insurance can seem like a waste of money, especially if the policyholder doesn’t need to make a claim.
But if something goes wrong at the rental, the landlord could be left holding the bag and unable to recoup their losses.
With premiums starting at about the price of a large coffee each day, cover is a cost-effective safety net.
All landlord insurance policies are the same.
Landlord insurance is designed to cover property investors against the most common risks they face.
It is a specialised product, with the best insurance providers offering policies that suit a range of letting scenarios.
But not all insurers offer cover for the same risks, have the same inclusions and exclusions, or terms and conditions.
It’s important that landlords select a policy that is right for them and the way in which they lease their property.
The rules are different depending on whether it is a house, unit, fixed-term, short-term (including Airbnb) or fully-furnished.
Landlords only need insurance when the property is leased.
The rental only needs to be insured when it’s occupied, right? Wrong!
While many of the most common risks occur when there is a tenant in the property (like accidental damage or loss of rent), there are other non-tenant related risks the right policy will cover.
Risks include damage from fire, storm, theft or impact, which can occur whether there’s an occupant or not.
In addition, water damage from leaking or burst pipes from neighbouring properties is not uncommon.
Landlords also need legal liability cover even when the premises are not occupied in case anyone who enters the property, such as during an inspection or to carry out maintenance, is injured.
Tenants are covered by the landlord’s insurance.
This is a common misunderstanding for both landlords and tenants.
The landlord’s insurance only covers the losses the landlord may suffer as the result of an insured event.
The only time the landlord’s insurance may cover their tenant’s losses is if the landlord was negligent in some way and caused the tenant’s loss.
Tenants need their own contents insurance to cover their possessions at the property and their legal liability (known as occupier’s liability).
The property is always covered.
It’s dangerous to assume that just because there is a policy in place, the property is covered at all times.
The fact is, there are times when the property may not be covered, such as when the premises are being renovated or left vacant/unoccupied for an extended period.
Scenarios like these present greater risks for the property (like damage), which is why insurers need to be informed so they can decide if they will continue to cover the property and, if so, under what conditions.
All loss of rent eventualities are covered.
When landlord insurers talk about cover for loss of rent, they are referring to very specific circumstances where losses occur, known as insured events (which are listed in the policy wording).
These insured events may include a tenant defaulting on their rent or obtaining a hardship order, the tenant being evicted, the death of a tenant(s) or unsafe living situation following an insured event (such as the property being uninhabitable due to fire damage).
Rent losses stemming from market conditions are not claimable.
For example, a landlord can’t claim simply because they can’t find a tenant. Market conditions are a risk all investors face and are uninsurable.
Insurance policies are transferrable.
When the ownership of a property changes, the title deed is transferred to the new owner but the insurance is not.
The insurance contract is an exclusive agreement and is only valid for the duration of the policy and if the current policyholder continues to own the insured asset.
If the owner sells/transfers the property, the insurance policy becomes void. The new owner needs to take out their own landlord insurance cover to protect their investment.
Landlords don’t need specialist insurance because they have a property manager.
Of course having a great PM is essential, but no PM is superhuman – there is only so much you can do if things go wrong at the rental.
Previously perfect tenants can go from dream to nightmare (due to job loss, relationship breakdown and more) and you will be limited in what you can do (legislatively and contractually).
Situations can escalate quickly and landlords need insurance protection as they could incur significant losses before the situation is under control.
Don’t let your landlords put their investment at risk through misconception.
At EBM RentCover we work to educate clients so they understand the value of landlord insurance.