You probably already know that landlord insurance can protect your rental property if it’s damaged in a natural disaster, or vandalised by a bad tenant. But did you know that landlord cover can protect your rental income too?
One of the primary benefits of owning an investment property is the regular rental income it provides. But what happens if your tenant suddenly skips town with months of rent still owing? Or if your property is damaged in a storm and it’s off the market for months while you repair or rebuild it. How would you recover from the financial loss?
Coping without your rental income – even temporarily – can be stressful, especially if you rely on it to cover the mortgage or your week-to-week living expenses. That’s why it’s so important to get the right landlord insurance, which will cover you for loss of rental income.
This will give you peace of mind in knowing your income is covered if something goes wrong with the property or your tenant.
When tenants don’t pay rent
One of the biggest worries for property investors is to be stuck with a tenant who can’t (or won’t) pay their rent. For instance, they might leave unexpectedly with thousands of dollars of rent in arrears. Or if you need to evict them, they may refuse to pay the rent they still owe.
The rental bond your tenant paid might help to cover part of this loss. But it probably won’t be enough – especially if the tenant is months behind in their rent or if they’ve damaged the property or stolen your belongings.
That’s where landlord insurance can be a great help. Many policies will cover the legal costs involved in evicting your tenant or recovering the rent they owe you. Some policies will even help cover the rent if your tenant dies. You should always refer to the Product Disclosure Statement (PDS) to confirm what you can be covered for.
Keep in mind that before claiming for non-payment of rent, you’ll need to do everything you can to recover the rent you’re owed. So make sure you check the relevant residential tenancies act and other state or territory legislation, which outlines the steps you can take if your tenant has stopped paying rent to you or your agent. Also refer to the PDS to understand what’s covered or not covered.
Property loss or damage
While bad tenants can mean a loss of rent, so can bad weather. Fortunately, landlord insurance often covers your property against loss or damage caused by a natural disaster, the same as a home insurance policy. A landlord insurance policy could also cover damage caused by a falling tree or vehicle impact.
Just as importantly, some landlord-protection policies will cover loss of rent if your property becomes uninhabitable due to damage. Some will even cover you for up to 12 months’ rent while your property is being repaired or rebuilt. This can make a real difference to your finances – and your stress levels. Refer to the PDS for specifics of the cover.
Landlord insurance can also protect you for claims made against you if someone dies, is injured or there’s damage to another person’s property. Your policy may even cover the costs of replacing lost or stolen keys, or repairing locks on doors and windows.
Also, your insurance policy is considered an investment expense so your premiums may be tax deductible. Refer to the Australian Taxation Office’s page on rental expenses to claim for more information. We also recommend seeking independent advice from a tax adviser.
Things to keep in mind
It’s important to be aware that landlord insurance won’t cover loss of rent in every situation. For instance, you won’t be covered if your property is unoccupied simply because you can’t find a tenant. You also can’t claim for any rent that was in arrears before you took out your policy.
As with most types of insurance, landlord cover differs between insurers. So before taking out a policy, check the policy and PDS carefully to make sure it covers everything you need. It’s also wise to:
- Check if a waiting period applies before you can claim on rent default.
- Contact your insurer if you need to take your tenants to court to make sure the insurer agrees to pay your legal costs.
- Check independent comparison sites like Canstar that compare cost and features across many landlord insurance products to determine which policies offer outstanding value.
Managing your premiums
There’s no doubt that landlord insurance provides great value for money and peace of mind. But if you’re on a tight budget, you might be concerned about having to cover the cost of your insurance premium each year.
Many policies allow you to pay your premiums fortnightly or monthly at no extra cost – making it much easier to manage your cash flow than with an annual lump-sum payment.
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