Home and contents vs landlord insurance

Some landlords mistakenly think that standard home and contents insurance is the right choice for their investment property.

That could prove costly if they need to make a claim.

Tenants

Rentals have tenants.

And that’s the fundamental difference between an investment property and a private residential property.

Sounds basic, but it’s an important difference when it comes to insurance.

You see, standard home and contents insurance is designed to protect owner-occupiers from the financial costs associated with repairing or replacing their property due to damage or loss caused by an insured event.

These insured events cover common risks that homeowners may face.

These are primary risks that could see property lost or damaged by unforeseen events such as a fire, storm, break-in, and burglary.

The insurance is also designed to protect against the financial risks associated with a third party being injured or having their property damaged while on the premises (public liability).

In general, the cover does not extend to any other financial losses, such as lost income.

It’s important to understand that home and contents policies are not usually designed to cover income-generating properties, whether it’s from a business operating from the premises or the property being used as a rental.

These activities may be considered commercial activities and are specifically excluded from home and contents insurance.

With renting the property an exclusion, should the landlord need to make a claim, they may find their claim will be rejected, leaving them to foot what could be a hefty bill.

Landlords with investment properties in strata complexes, such as apartments, villas, townhouses, or flats, often think that they don’t need to take out insurance as the complex has strata cover.

Like home and contents cover, the strata insurance will not cover tenant-related losses – nor will it cover the contents of the individual unit or liability within that unit.

To have both their unit’s contents and their income from renting the property covered, landlords need a specialist cover like EBM RentCover Ultra.

Specialist landlord insurance

While private residences and investment properties face some common risks, like a house fire, theft, damage from severe weather or natural disasters, public liability, and so on, owners of rentals have other risks to consider.

Specifically, the people factor – risks associated with having tenants.

More than half of all claims made on landlord insurance policies are for losses relating to tenants – chief amongst these is loss of rent and damage by tenants.

Last year, EBM RentCover paid out around $17.2 million for loss of rent and damage caused by tenants.

Perhaps the most obvious risk – and the most common claim – is loss of income (rent).

Last year, around 44 per cent of all claims EBM RentCover policyholders made were for rental losses.

There are many reasons why a landlord may lose rental income but, most commonly, it’s rent default.

It may not be a ‘bad’ tenant who leaves a landlord facing a significant loss.

While there are certainly cases of tenants doing the wrong thing – absconding or, worse still, staying put (e.g. squatting) and not paying their rent, there are also cases where losses are incurred, despite the tenant’s best intentions.

Even good tenants can be caught up in events beyond their control.

Once ‘ideal’ renters can find themselves unable to meet their obligations for any number of reasons including losing their job, suffering financial hardship, illness, a relationship breakdown, or the death of a partner.

While not a pleasant thought, a tenant passing away is also a more-common-than-you-may-think reason landlords suffer rental losses.

Landlords who lose rental income while their investment property is undergoing repairs after an insured event or while access is prohibited can find themselves needing to make an insurance claim too.

Damage caused by tenants, their pets, and guests, is also a top reason landlords might need to make a claim.

While it’s the tenant’s responsibility to make good on any damage they have caused, this doesn’t always occur, and the losses may need to be recouped from the landlord’s insurance instead.

Meanwhile, accidental, malicious, and intentional damage by tenants accounts for around 29 per cent of all claims made by landlords.

It’s also interesting to note that about 72 per cent of claims for accidental and malicious damage also include claiming for loss of rent.

At EBM RentCover we recognise that there are letting scenarios where the landlord doesn’t want to cover tenant-related losses.

This is usually because they are renting to a family member, friend, or a reliable long-term tenant.

That’s why we offer the Householders Rental policy.

This provides protection for a range of risks at the rental like fire, storm, and water damage, public liability, and loss of rent due to repairs or prevention of access, but doesn’t cover tenant-related losses like rent default or damage caused by tenants.

Of course, specialist landlord insurance doesn’t just provide protection against damage from insured events and loss of rent.

There are other features that are designed to protect landlords from other risks that are unique to rentals.

Risks like tenants stealing fittings and fixtures – taking off with the window coverings is common, and there are those who have, indeed, made off with the proverbial kitchen sink, not to mention dishwashers, air-conditioning units, and toilets.

Then there are legal expenses associated with going to the tribunal over the loss of rent, the cost of changing the locks after a tenant has been evicted by a sheriff or bailiff, costs associated with a tax audit in connection with owning an investment property, and even the cost to clean-up a drug lab that’s been operating from the premises.

Guest Author: This article was written by the team at EBM RentCover and was originally published here. EBM RentCover is one of Australia’s leading landlord insurance providers, protecting more than 150,000 rental properties across Australia.

About Guest Expert Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.