An investment property can be a valuable asset when managed properly within your personal finance playbook, but it is a major financial commitment. Despite your most conscientious efforts, this asset may incur costly damage or cause you financial strain if balancing your budget relies on rental income from the property. Landlord insurance can help protect you financially if disaster strikes.
But what is landlord insurance? This is a specialised policy under the home insurance umbrella that caters to the additional insurance needs of landlords alongside the standard coverage for building and contents.
As home loan interest rates soar alongside other cost of living pressures, it’s more important than ever to minimise major financial risks. So, let’s explore what’s covered by landlord insurance policies, how property owners can reduce insurance premiums and other insurance requirements for landlords in Australia.
Is Landlord Insurance Worth It?
While property owners who are renting out their investment homes are not legally required to hold landlord insurance in Australia, it has become best practice in the space to do so. Like any form of home insurance, landlord insurance exists to help cover costs when your property is impacted by unforeseeable events. If you’re not living within those four walls yourself, it’s fair to say that list of unknowns could be a little longer, considering issues that can crop up with rental income, tenant damage and associated legal fees.
So, it’s definitely worth researching your landlord insurance options and comparing policies from different providers to find the best cover to suit you and your home.
What Does Landlord Insurance Cover in Australia?
While policy inclusions, optional extras and circ*mstances which aren’t covered can vary between providers, you can usually find the following covered by landlord insurance in some capacity. Before you purchase a policy, carefully scour the product disclosure statement (PDS) to make sure everything that’s relevant to your investment property is covered.
- Building and contents. Cover for the structure of your home and items within it can be purchased separately or as a combined policy. The former (building insurance) covers damages to the structure of your home and property. The latter (contents insurance) covers items within your property. This can include internal fixtures like carpets, curtains, dishwashers and light fittings, as well as furniture and other belongings if you’re renting out a furnished home.
- Loss of rental income. If an insurable event damages your home to the point it’s unlivable, most insurance policies will cover the loss of rental income while it’s being repaired. Generally, the property will need to be considered unlivable or be inaccessible for at least seven days for this to kick in, with rental loss often covered for up to 12 months.
- Public liability cover. Medical and legal bills can stack up if someone is injured while visiting your investment property, or even if they slip on your driveway. Public liability covers these costs.
- Other legal costs. Some claim scenarios may need to be escalated legally. For a landlord, this will usually involve seeking legal representation if you need to evict a tenant.
- Damages caused by tenants (accidental and malicious). Accidents happen! Renters and their guests are only human, and may accidentally cause damage to your property. This is usually covered by landlord insurance, alongside intentional or ‘malicious’ damage. These are generally two separate policy inclusions and may come with different sub-limits for payouts, so be sure to check your PDS for those distinctions.
Common Landlord Insurance Optional Extras
You can choose to tack on additional policy inclusions to tailor insurance to your property and tenant needs. Option extras will bump-up your premium, but could be worth it in the right circ*mstances.
- Tenant default. If your tenants stop paying rent unexpectedly or completely abandon the property and lease, you can claim a certain amount of rental loss through this extra (often capped at around $10,000).
- Damages caused by tenants’ pets. Since landlords can usually dictate whether or not their rental property is pet friendly, damages caused by pets usually aren’t included as standard in landlord insurance policies. Remember: some states are now enforcing laws around tenant rights to own and house a pet, so be sure to check you’re complying with pet application requests when putting your property up for rent.
- Replacement keys and locks. If you experience a break-in or your former tenants scooted off without returning their keys, you may want to change the locks as a security measure.
- Flood cover. You may not be protected from damages caused by flooding in a standard policy, especially if your property is in a high flood risk zone. Be sure to check your PDS for definitions of what is covered for flood damage versus storms and escaped liquid. This will help you identify if flood cover is appropriate for your investment property.
Why Your Landlord Insurance Claim May be Denied
There are a number of reasons why your landlord insurance claim may be rejected. Even if damages appear to be caused by an insurable event, ignoring certain stipulations in your insurance policy may void the claim. Be sure to check your PDS for rules around:
- Unoccupied property timeframes. Your claim may be denied if there’s nobody living at your property for a certain period of time (often 60-90 consecutive days) when the insurable event happens. This is usually a stipulation as the assumption is if someone were at the property damages could have been minimised, if not avoided entirely.
- Property maintenance expectations. If your investment property falls into disrepair because you failed to fix issues like a leaky roof or prune back hazardous trees, your insurance won’t cover claims that link back to this.
- Insurance consultation before booking repairs. You may be covered for storm damages, but if you go ahead and book and pay for repairs post-storm without first contacting your insurance provider and following their processes, your claim may be denied. This may be because the provider has certain approved repair companies you’re required to use, or because they need to conduct an assessment of the damage before moving forward with your claim.
- Agreeing to tenant requests. While it may seem fair to give your tenants some leeway on rental payment dates or a rent reduction if they’re experiencing financial hardship, anything that’s not legally binding could impact future insurance claims. For example, if you agreed to let your tenants pause rent while they get back on their feet financially and then they abandon the property, the insurance provider isn’t required to meet any payments for tenant default, as the claim arose out of you effectively negotiating a free rental situation.
Do Landlord Insurance Rules Vary by State?
Most landlord insurance providers offer coverage Australia-wide, but there are some state-specific groups that aim to offer more tailored local solutions and support community endeavours. The requirements and inclusions of landlord insurance policies are dependent on the insurance providers that issue them, and are not dictated by the state or territory where you live.
However, there are some location-based considerations you’ll need to make when taking out a policy.
Landlord insurance in VIC: Flooding is a major issue for many properties on the east coast of Australia, so you’ll want to carefully investigate flood cover if your rental property is in Victoria. In 2020, Victorian tenants were given greater power to bring pets into rental properties, meaning landlords must provide strong reasoning for a refusal and go through the Victorian Civil and Administrative Tribunal (VCAT) to deny an application. RACV is the state-based insurance provider for Victoria.
Landlord insurance in NSW: Similar to VIC, flood cover should be carefully considered for property owners in many parts of New South Wales. NSW (and specifically Sydney) is home to some of the country’s most expensive property, so ensure your home is adequately covered.
Landlord insurance in QLD: Due to cyclones and other severe weather, many properties in Northern Australia face excessively high insurance premiums, or can’t be insured altogether. So, if you own property in a cyclone-prone region like northern Queensland, it’s imperative to compare insurance options and seek out the best deal possible. The Federal Government’s cyclone reinsurance pool is aiming to help bring premiums down.
Landlord insurance in NT: Similar to QLD, many Northern Territory properties are affected by cyclones and severe weather, resulting in high premiums and making landlord insurance comparison essential.
Landlord insurance in WA: Much of Western Australia also faces cyclone conditions with the flow-on effect of soaring home insurance premiums. RAC is the dedicated state-based insurance company for WA, offering membership benefits alongside coverage.
Landlord insurance in SA: Similar to VIC, South Australia attempted to introduce a law in 2021 giving greater rights for tenants to have pets in rental properties, but this bill wasn’t passed.
Landlord insurance in TAS: RACT is the state-centric home insurance provider in Tasmania, offering membership discounts and other local benefits.
Landlord insurance in ACT: There is a similar application process to the Victorian system that gives renters greater power in pet applications in the Australian Capital Territory. Again, a landlord’s refusal requires acceptable reasoning and must go through the ACT Civil and Administrative Tribunal (ACAT).
How Much Landlord Insurance Cover do I Need?
The level of cover you take out as a landlord of an investment property should reflect the full value of your home, as well as the rent you’re charging. When you go to insure your property, you may want to enlist a third party to conduct a property valuation (for a fee) to ensure you purchase adequate insurance.
Some insurance companies will offer underinsurance protection as part of your policy, either as standard or as an optional extra for an additional fee. This feature kicks in if your insurance doesn’t fully cover the cost to repair or rebuild your home after a disaster. It’s usually set at around 30% of the sum the property is insured for, meaning the insurance company will fork out this additional cash to cover further repair work and associated costs.
How to Make a Landlord Insurance Claim
Like any other insurance product, you’ll need to get in touch with your provider (usually online or over the phone) to make a claim. Have your insurance details at the ready, and gather as much information about the incident as possible. Things like photos of damages, bank records in the case of rental loss and a police report in the case of theft or vandalism are all important evidence to provide when claiming.
Many insurance companies have nominated providers for conducting repair work, so be sure to go via the official process to book repairs, or you may void your claim. Communicate with your tenants to ensure they know the process is underway, coordinate with them if repairers need to be let into the property, and request written statements from them if the circ*mstances require it (such as after a break-in). If the home is unlivable after an insurable event, you’ll need to manage the process for tenants moving out and the rental bond being refunded.
If the claim is related to issues with tenants and needs to be escalated legally, get in touch with your provider and follow their official channels.
Frequently Asked Questions (FAQs)
How Much Does Landlord Insurance Cost?
The premium you pay for landlord insurance reflects a huge range of factors each insurance company will take into account when calculating your quote. This assessment will include things like the age and value of your home, its location and associated risk factors like the propensity for floods and bushfires in the region, as well as the property type (house vs apartment).
Since each home and the tenanting situation varies, there isn’t a standard or average price to point to when assessing the cost of landlord insurance. But there are some things you can do to reduce your landlord insurance premium. By choosing a higher excess – the gap you pay when making an insurance claim – you can lower your annual premium. Just be sure you’ve got ample funds to cover that cost out-of-pocket if the need arises, as paying a $500 excess versus a $5,000 one is a very different budgetary concern.
You may also be eligible for discounts on your landlord insurance cover. Some insurance providers offer a discounted rate on your first yearly premium if you sign up online (often 5% – 15%), or will give you an additional discount if you combine home and contents cover under the one policy (usually 10% – 15%). Many will also offer a no claims discount which can build up to a significant premium reduction over time if you don’t make any claims on your policy for a certain number of consecutive years.
How is Landlord Insurance Different from Home Insurance?
Both home and landlord insurance are intended to protect you financially should the structure of your home suffer damages during an unforeseeable event. This includes public liability cover if someone were to injure themselves while visiting the property. You can opt to include contents cover under both policy types, but landlords should carefully assess how this applies to their rental property.
Unfurnished investment properties may not require a standard contents insurance policy, since this cover often insures personal belongings and valuables which you may not keep at the property as a landlord. However, many insurance providers include internal fixtures a landlord may want to insure like dishwashers, microwaves, blinds, curtains and carpets in contents cover rather than building policies. If the contents policy you’re considering is too broad, get in touch with the provider to see if you can negotiate specific cover tailored to your needs.
Where landlord insurance diverges significantly from home insurance is in cover related to tenants. This can include cover for rental loss if your tenants abandon the lease or are evicted by court order, as well as malicious or accidental damages tenants may cause and legal fees that could be required when dealing with these situations.
Rental loss can also be covered by landlord insurance if your tenants aren’t able to live in the home for a certain period of time (usually more than seven days) after an insured event – this can often extend to cover 12 months of lost rental income while the building is being repaired.
Is Landlord Insurance Tax Deductible?
Yes, landlord insurance is tax deductible as long as your investment property is tenanted out. If the home isn’t rented for part of any given financial year, you can only claim the portion of the insurance premium that reflects when tenants were living there. See what other tax deductions you can claim on your investment property.
What’s the Best Landlord Insurance in Australia?
The best landlord insurance for you is a policy that fits within your budget, fully covers the value of your home and considers the costs you’d need to cover if you lose rental income unexpectedly. This equation will likely be different for each property owner, so it’s important to take stock of your financial situation and assess the value and needs of your investment property, then compare landlord insurance policies.
You can generally get an insurance quote online in about five minutes, but it’s also worth reading through the PDS of various policies to fully understand what’s covered and in what circ*mstances. If you want to personalise your application further or try negotiating for a lower premium, call the insurance companies directly. Come armed with other quotes (at a lower price or with more coverage inclusions) and see if the provider is willing to offer extra coverage, sign-on discounts or other benefits.
Is Landlord Insurance a Legal Requirement in Australia?
No, you aren’t required to purchase landlord insurance in Australia if you’re renting out your property. However, it’s generally advisable to hold home insurance that adequately covers your property in case of unforeseeable events like floods, storms, fire or vandalism. Otherwise, you could be facing a serious repair bill.
When you rent out your home, you also need to consider if losing that rental income could put you in a precarious financial position. Landlord insurance policies usually cover a set amount of forgone rental income after events like tenants abandoning the lease or if they can’t live at the property after a natural disaster, which (in addition to a rental bond) can help tide you over until you can let out the property again.
