Buying an investment property is an exciting step, so it's important to understand how to protect it with landlord insurance.
After purchasing an investment property, some of the next steps include finding a good tenant and considering the levels of cover the property may need. Landlord insurance may cover your unforeseen repair bills due to damage by an insured event and possible loss of rent if the home is unliveable. If you have a mortgage on your investment property, some lenders may require proof of building insurance as a part of their loan settlement requirements. This helps protect you, as well as the lender, against the financial risks caused by unexpected damage or loss to your property.
What is landlord insurance?
Landlord insurance is specifically designed to protect your investment property from loss or damage when renting out your unit, apartment, or house. Landlord insurance can help protect you against insured events that lead to theft, loss or damage to your investment property and a loss of rental income.
What does landlord insurance cover?
You can choose different types of landlord insurance to provide cover for:
- Building cover only: coverage for insured events that damage your property's structure.
- Contents cover only: coverage for insured events related to the damage or theft of household goods that you own and have provided for your tenants use, within your rental property. This can also include things like carpets and curtains.
- Combined building and contents: coverage for insured events related to both building and contents. For example, both your investment property and the contents inside it have coverage if they are damaged in a flood, fire, cyclone, earthquake, storm or other events
Does landlord insurance cover loss of rent and rent default?
Horror stories of tenants destroying a property make the news. Not only is the landlord burdened with the cost of repairs, they also have the additional stress of going weeks, or months without rental income.
Thankfully, some landlord insurance policies will cover the damage by tenants and loss of rent when the building becomes unliveable due to loss or damage from an insured event or if your sole tenant passes away. It's worth checking with your insurer first as cover levels vary.
Rent default is different from loss of rent from an insured event, and may be optional, where you need to add it to your policy to have protection.
As a landlord, having a tenant refusing to pay rent, or vacating your rental property without giving you notice can be a stressful experience. Rent default can help to cover you when a tenant leaves your rental property without notice, is legally evicted from your property, or stops paying their rent, providing you with stability of earnings while you find a replacement tenant. Having a formal lease in place is important and bond money paid that equals at least four weeks rent, as this may be a condition of your policy. Read through your policy's Product Disclosure Statement (PDS) to see if rent default and cover for loss of rent are included in your landlord insurance policy and any conditions, limits or exclusions that apply.
Even good tenants can cause damage
Most tenants want to do the right thing, but of course, the unexpected can happen. A harmless game of backyard cricket can end with a ball smashing through the kitchen window, and a hose that bursts on a washing machine could flood the ceiling of the apartment below resulting in huge repair and replacement bills.
That's why it's worth considering landlord insurance that includes things like accidental glass breakage, water damage and liability cover. Check your policy's PDS to ensure the cover is right for you.
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