Maximising returns from investment properties is essential. Protecting your investment is just as important.
Investors new to the property scene are sometimes wondering if landlord insurance is more expensive than homeowners.
The answer isn’t necessarily straightforward, or a ‘yes or no’ answer that most are looking for. This is because insurance is a complex product, and several individual contributing factors can impact an individual’s insurance premium.
In this article, we will cover:
What is landlord insurance?
Landlord insurance is a type of insurance the covers an investment property’s structure and any contents owned by the landlord (e.g. carpets, blinds, dishwashers). Some landlord insurance policies include added protection against tenant damage, loss of rent and rent default.
While insurance policies vary, the table below provides an overview of the difference between the insured events generally covered.
If landlord insurance includes extras like loss of rent, then why isn’t it automatically more expensive than homeowners?
It’s ultimately like comparing apples and oranges. An owner-occupied home that has thousands of dollars’ worth of loose assets (i.e. furniture, personal belongings) can’t be compared against an empty investment property even if the property itself is of similar value.
If you used the hypothetical of comparing the identical, completely empty property then it is possible for landlord insurance to be more expensive than the homeowners option. But realistically this isn’t possible as an owner-occupier wouldn’t live in an empty house.
The key takeaway here is that homeowners is designed for you and your belongings in your home. While landlord insurance is specifically designed for investment property and the risks they face. There are a lot of different sections of cover in insurance policies that just don’t apply for both.
For example, if you’re electricity failed and all the food in the fridge spoiled, you can’t claim this spoilage on an investment as you don’t live there but you may be able to with homeowners. The same applies to temporary accommodation if it’s required following an insured event.
Why landlord insurance is essential for investment properties
Like any investment, rental properties are exposed to risks. Even with the most reliable tenants, the unexpected can always happen.
If you don’t hold an adequate level of insurance, you could be out of pocket by thousands of dollars in the event of claim.
Not holding landlord insurance also poses the risk of not being covered for the right type of legal liability. For example, homeowners insurance generally has an exclusion to legal liability if the property is used for any ‘business use’, and as an investment property makes income this can be classed as business use. Therefore, if you held homeowners insurance on an investment property you may not have liability cover if someone were to get hurt on the premises.
Despite off of this, research suggests that approximately 83 per cent of properties are underinsured. This could be reasons such as not holding the right type of insurance (e.g. only holding home and contents but not landlord) or having the right type of insurance, just not enough.
3 tips when searching for a landlord insurance policy
1. Understand what you need insurance for
Is your investment property a short-term or holiday rental, long-term rental, shared accommodation or in a strata complex?
There’s no ‘one size fits all’ approach when it comes to insuring property and the first step is always to have what you need to be insured for. For example, a short-term rental such as a holiday home leased for three months of the year doesn’t have the same insurance needs as a long-term rental.
2. Analyse different policy options
The cheapest option isn’t always the best and it’s essential to know your options. Know what you are and aren’t covered for, read the fine print and feel comfortable knowing you are covered if the unexpected happens.
An insurance broker can assist you in finding an adequate policy, helps you throughout the process and can manage any claim process that may arise.
3. Know the property’s replacement cost
Your property’s replacement cost is essentially how much it would cost to completely rebuild your property. This includes factors such as the cost of construction, considering the site constraints, cost changes over time, demolition costs and the removal of hazardous materials. Knowing this will inform how much insurance cover you will need.
This is especially important if you’re turning your main residence into an investment property and making improvements before leasing it out. Any improvements, whether due to damage or simply renovating will add value to the property and your insurance coverage must reflect this.
BMT Insurance is committed to protecting investment properties with the most suited insurance policy. BMT Insurance works with policy providers and uses extensive construction cost data to ensure the right level of coverage.
To learn more about BMT Insurance and to get an obligation-free quote, call the team on 1300 268 467 or Request a Quote.