Landlord insurance is not always the same.

We come across a lot of different Landlord insurances. Some policies have great coverage, while others leave a lot out and only cover the disasters and then not always.

Tenants and Landlords are not required to take out insurance, but…

Residential Tenancy law stops a landlord from requiring a tenant to take out insurance. For that matter, the law also doesn’t require a landlord to take out insurance either.

Lawmakers assume people can make informed decisions and choose what is right for themselves. With that right to decide comes responsibility for knowing and accepting the risks those decisions involve, and it goes for all parties, the landlord, the agent, and the tenant.

And again, we want to ensure you understand that we are not giving anyone insurance advice. We are not insurance experts, and these summaries may not apply to your situation. Instead, this information is general only. We intend that having read it, you’ll talk to an insurance advisor and ask questions.

Accidental vs Malicious
Accidental damage is best described, as the name implies, as the damage that is the result of an unintended event.

Malicious damage is rare. The worry that a tenant will trash a property deliberately worries most new landlords, mainly if they have seen a Current Affairs report on the ‘tenant from hell’. Many standard Landlord insurance policies cover malicious damage but don’t cover accidental damage.

We know a case where a husband and wife were fighting, and the wife threw the iron at the husband. He ducked. The iron put a hole in the lounge room wall. Insurance said that was accidental damage because the wife was aiming at the husband and missed. She wasn’t trying to damage the wall. They wouldn’t pay the insurance claim because it wasn’t malicious.

Accidental vs Negligent
Negligence is a subset of accidental. Negligence is accidental damage (not intentional) that happens from not taking reasonable care. A wine glass slipping out of your hand and staining the carpet is accidental. A cigarette burn on a carpet is negligence since it is known that cigarettes drop ash.

Read your policy. Some insurers cover accidental damage, and others don’t. Better still, ring the insurer and ask, ‘if this happened, would you cover it?’

Loss of Rent
Loss of rent insurance covers you when tenants stop paying rent. They don’t have to be in default. Circumstances might be that a property becomes unrentable.

We have had houses hit by storms and trees and needed extensive, time-consuming work to get them back to being liveable. Building insurance covered the repair of the property. Loss of rent insurance paid for the rent while the property was uninhabitable.
The bank won’t stop holding out its hand for the mortgage. If you need the rent to pay the mortgage, you probably need loss of rent cover. In many strata schemes, their building insurance also includes loss of rent cover if the building is damaged, but you need to check.

Loss of rent insurance can also cover lost rent because the tenant defaults on their rent. Not every time, but some better policies cover tenant default above the bond amount. It can take eight weeks to evict the tenant and another one or two weeks to clean the property up and have it ready for leasing again. The bond is four weeks’ rent, so this insurance will often pick up the shortfall.

Again, ask your insurer.

Excess can catch you out.
We had a couple of cases where owners thought they had great coverage only to find out when they claimed the insurer applied a separate excess to every item in the claim. We also know of a claim made for replacing carpet that was covered in burns. The policy included cover for the damage, but the insurer decided each burn was a separate event. A separate excess was applied to each burn and, you guessed it, no payout.

While these examples might seem extreme, claim where tenants left the place dirty and rent owing aren’t unusual. With a loss of $6,000, one insurance policy might cover the full amount, and another may only refund $1,000-$2,000. That difference is the equivalent of 10 years premiums.

Check with your insurer to see how they apply the excess.

Good insurance is expensive, cheap insurance is very expensive.