What is 'landlord's insurance'? Investment terms explained

There are many types of insurance policies to consider when you purchase an investment property.

Among these is landlord’s insurance, a type of cover that safeguards you, as the property owner, against damage caused by tenants in your rental property.

What does it cover?

Every landlord’s insurance policy is different and you must always read the fineprint to ensure you know what you are covered for. However, the general theme is that you are covered for damage, accidental or malicious, caused by tenants. It may also cover theft by tenants or tenants’ visitors.

It can also cover you in unlikely, but damaging, situations – such as death, or a similar circumstance, and it can also be cover in the event of a tenant undergoing illegal activities, such as setting up a drug lab.

It can also cover tenants who default on their rent or who vanish – meaning you aren’t suffering the shortfall. This is often covered up to a certain amount, and some policies will also cover the legal expenses due to the loss of rent, up to a certain figure.

Some policies separate it into building only insurance for landlords, and contents insurance for landlords.

Usually, there are still premiums and excesses payable, as for most policies.

Very specific items are often not covered or cannot obtain cover. For instance, in the case of AAMI landlord insurance, the following are not included in the building cover:

• Any part of the building or site used for conducting a business, trade, professional services or farming
  
  
• Any part that cannot be locked due to it being altered, renovated or rebuilt
  
  
• Any temporary structures or structures in the course of construction
  
  
• Houseboats, watercrafts, caravans, mobile buildings (fixed or free-standing), motorised vehicles etc
  
  
• Loose surfaces of tennis courts, driveways and paths
  
  
• Hedges, laws, trees, shrubs, plants, flowers, garden beds or any other living material

However, it does cover any of the property’s furnished aspects, as owned by the landlord, including floor coverings, wall hangings, sound and vision equipment, household linen, bedding, kitchen and dining equipment, computers and printers, outdoor garden furniture and free-standing playground equipment.

AAMI also notes that their cover does not extend to damage/losses caused by vermic, rodents, insects (including termites) and domestic animals. It also doesn’t cover applications of heat where there was not flame – for instance, cigarette burns or scorch marks. These are just of the few of the does cover/does not cover specifications and it’s worth reading them through if you’re considering the coverage.

Metro Property Management's Leah Calnan previously wrote that: "The best policies on the market allow for 15 weeks loss of rent.  Loss of rent is payable to an owner when tenants stop paying the rent and are subsequently evicted from the property, when they up and leave overnight, in the event the property is not tenantable (i.e. due to flood, fire, etc.) or in the event your tenant dies."

"Like anything nowadays there are many different policies on the market to choose from. I have worked with some fantastic policies, but I have seen owners incur considerably out-of-pocket expenses due to taking out the wrong policy," she explained.

How much does it cost?

This will vary for every landlord, and will also vary depending on the provider and level of cover. Some also have multi policy discounts, for instance offering 10% discounts on building cover when you combine with landlord insurance.

It also varies depending on where the property is located, if you self-manage, whether or not it is a short term rental and the amount of rent charged. Most providers offer a rough online quote to get you started, for instance Terri Scheer online offers a fairly comprehensive assessment. They also ask about whether the property is furnished, and the size of the property. 

What else you should know

While whether or not you obtain this insurance, and when is down to the individual’s varying circumstances, it’s often highly recommended. Landlord insurance can also cover you for when the property is being shown at opens and sitting vacant, where you have liability.

If you move into the property, the insurance isn’t valid.

While it’s possible to get cover for periodic and fixed term leases through different providers, many will not cater to “casual leases”, and some will also not cover self-managing landlords. You will also want to make sure your property manager is collecting the right paperwork, or you may find yourself unable to claim. For instance, Westpac’s Landlord Extras claims can only be paid if there is a written rental agreement (which has to include the term of lease, amount of rent and bond payable), documented booking confirmation (in the instance of casually-let properties) and documented property inspection reports. Without these things, they will not pay out.

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