Landlord’s insurance – are you covered for what you think you are?
Did you know that there is a vast difference between building insurance (also known as a household policy) and a landlord’s policy? Some people may mistakenly believe that because their building insurance notes the rental amount on the policy that it automatically covers for rent default. However, landlords cover is not automatic. The devil is in the detail. Let me explain why:
What is building insurance?
Building insurance protects against damage to the property’s structure and can extend to insurable events’ such as fire; lightning strike; storm damage; falling trees; explosion (caused by gas leaks etc); earthquake; vandalism; vehicle collisions with the building; water damage to the house itself.
When you rent out your property, it is your duty of disclosure to advise the insurance company that the property is tenanted. The insurance company may offer protection for the loss of rent if an insurable event occurs (such as those just mentioned). This policy will NOT cover rent default when a tenant simply stops paying rent. Nor will it cover damage to the property by the tenant.
If you want this sort of cover, you will need to obtain landlords insurance’. Your building insurer usually can offer landlords insurance. However, it is a separate risk and you will need to pay extra for this coverage.
Many landlords believe that they can claim for rent default under their building insurance because the rental amount is noted on the building policy. Generally, this is incorrect too. Under a building policy, a claim of rent default is met when an insured event’ has occurred, such as storm damage. The rent component will then kick in to cover the loss of income under the policy whilst the property is being repaired.
What is landlords insurance?
Landlords insurance generally covers events such as loss of rent or rent default, damage or theft by tenants, contents of landlord, liability, flood, cleanup costs associated with illegal drug production.
Let’s take a look at an example. A tree falls on to a house off the back of a violent storm leaving the property uninhabitable for 9 weeks. A landlord insurance policy would respond by covering the loss of rent during this period. Whereas, building insurance would respond by covering the cost of repairing the property’s structure.
Many Landlords are of the mistaken believe that if they just insure their building, the other things are automatically covered. They are not, unless the policy is written specifically for Landlords and you select all of the above covers.
What can the tenants bond be used for?
This occurs when the tenant, despite the best efforts of the Property Manager, fails to pay the agreed rent on time and in full. If this occurs the Property Manager must follow a series of steps that may ultimately lead to the tenant being removed from the property under an order from the Tenancy Tribunal.
At this point, many Landlords believe that the bond that is retained under the order from the Tribunal will be enough to cover outstanding rent. However, in many cases, this is proven to be incorrect. The bond is often used to pay for clean-up costs, removal of rubbish, excess water charges and all manner of outstanding costs. If the bond is exhausted by these costs then unless the Landlord has a Landlords Insurance policy that covers Tenant Default, the Landlord may be significantly out of pocket.
Tenant Default can only be paid when an order has been made in favour of the Landlord by the Tenancy Tribunal. In our experience when this occurs there are a number of additional sections on the Landlord’s policy that will offer relief to a Landlord. Repairs to the property after the tenant has left if caused by Malicious or Accidental Damage, Loss of Rent, while the repairs are being completed, are typical claims scenarios.
What if a tenant is injured on the property?
If a tenant, guest or visitor suffers personal injury or property damage while on your property and the cause of that loss is something that you are directly responsible for then the Public Liability section of the policy will more than likely respond to the claim on your behalf. If you do not have the correct policy in place then you will be held personally and financially responsible. The costs to defend such claims run into many thousands of dollars even before a decision and award are made against the Landlord.
In order to protect your assets and to protect the income stream that you derive from that asset, it is essential that you purchase the correct cover as a Landlord.
Please contact your First National Real Estate Rochedale / Mt Gravatt property manager on 07 3341 6777 to inquire further about building or landlords insurance.