Landlords insurance is protection against property damage for property owners who are renting or leasing their properties.
Over the past 12 months, we’ve seen some significant shifts in the landlord insurance market as a result of the COVID-19 pandemic. In addition to rises in policy prices, we’ve seen some standard inclusions rolled back and caps introduced for rent default and other tenancy damage related issues.
There are two different types of landlords – commercial landlords (owners of property that is rented out to businesses) and residential landlords (owners of property that is rented out for living purposes).
There are a lot of different insurers and landlords policies available for both but finding the right policy depends on your individual circumstances.
However, there are three important things to consider when taking out a landlords insurance policy;
Building and Contents
The building and contents section of a Landlords insurance policy can cover you for damage to the property from storms, fire, floods and theft.
You can opt for just building insurance, which insures the structure and not the internal fixtures and fittings. Contents insurance protects what’s inside the property (carpets, appliances, etc) and most comprehensive policies include a combination of both.
The cost of Building and Contents insurance is impacted by location, construction, age and condition of the property. Building and contents insurance costs across Australia are rising, particularly in flood-prone areas, due to the increased risk and incidence of natural perils like flood and severe weather events.
A key difference of a Landlords policy compared to a general building and contents policy is the inclusion of public liability.
Public liability insurance by itself is generally defined as “insurance covering a person or business for costs from legal action if they are found liable for death or injury, loss or damage of property resulting from their negligence.”
It covers you financially if you are liable to pay compensation for death, injuries and illnesses to other people and/or damage to their property that occurred at your investment property caused by an accident (or series of accidents).
The amount of public liability cover can vary. For example, Allianz offers $10m in legal liability, whereas GIO offers $20m.
Landlord policies are also unique in that they can cover for the risks of someone else occupying your property. These risks and costs could include;
- Malicious damage (eg. punching walls, graphite and demolition)
- Theft (eg stealing appliances or fixtures, fittings on exit)
- Defaulting on rent or repairs (eg. living in the property without paying rent, leaving a property with damage and which is not covered by the bond)
- Legal costs of pursuing action against a tenant
- Missed income due to the property being vacant
Each landlord policy has different wording and cover options for tenancy risk. Prior to COVID-19 it was fairly standard for commercial property landlord insurance to include rent default but with the risk of tenancy vacancy rising due to COVID-19 lockdowns and the Government six-month moratorium to prevent landlords from evicting tenants, the majority of insurers in Australia stopped covering tenant-related risks on new policies until further notice.
According to Canstar comparison and ratings website, although the rental eviction freeze has ended and trading conditions are more stable, up to 70% of insurers have not reinstated rental default cover.
On April 9, Canstar released an analysis of the types of coverage available from insurers on its database for new policies. Coverage was offered as a standard inclusion, as an optional inclusion* or not at all.
It found that only eight of 57 or 14% of landlords policies offered Rent Default as standard cover, and only eight offered it as an optional extra. 20% of Landlord policies also excluded Loss of Rent from an Insured Event.
The analysis from Canstar demonstrates just how much a landlord policy can vary between insurers, even without reading the fine print about limits, caps and conditions!
There have been two instances recently of the AFCA upholding an insurer decision to reject a claim based on the fine print of the Landlords insurance.
In April this year, a landlord lost a claim dispute with Suncorp after her tenants smoked methamphetamine, causing dangerous chemical contamination of the walls, ceilings and other surfaces. Suncorp determined that the contamination was caused by methamphetamine use, rather than production which meant that it was not “malicious” under the terms of the policy. Read more here
Insurers are also tightening their tough stance on property maintenance of investment properties, rejecting claims where the owner has been negligent in maintaining a property. In one example recently before the courts, AFCA upheld an IAG decision to reject a claim on a property where 30 months had passed with no repairs and maintenance being carried out at the property despite the landlord being cash-settled for a previous property damage claim three years earlier.
You can read more about the requirements for maintaining your property Click Here.
*NOTE: If cover is an optional inclusion, this means you will have to pay extra for it.