Landlord Insurance - Property Investors, do you Understand your Current Policy and What it Covers?

If you own an investment property and you have a landlord insurance policy, have you checked your coverage? Due to cost of living pressures, rental arrears are on the rise, so it’s a good idea to check your current policy to confirm that it covers all that you need if unexpected events occur.

Rental Arrears

Does your policy cover rental arrears? How many weeks does it cover?

More importantly, and an area that may be overlooked, does your policy cover you if your tenant is not in a fixed term lease?

Your tenants may not currently be in a fixed term lease for multiple reasons, including you not wanting to pay the lease renewal fee, the renewal date being overlooked, you may not want the commitment of locking in your tenant for another fixed term, or perhaps your tenant is sporadic with their rent payments or not looking after your property as you would like and you’re thinking of terminating their lease.

Some insurance companies do not cover loss of rent if your tenant is not in a fixed term lease. If this is the case, ensure that your leases are renewed as soon as the existing lease expires, or move to an insurance company who does cover week by week lease agreements. If the tenants haven’t changed since the fixed term lease, some insurers will continue to protect you for rental arrears if they switch to a periodic lease (week-to-week).

Some years ago, I learned the hard way that I was not covered for rental arrears. My tenants were behind in their rent and the end of their fixed term lease was coming up. It was decided not to sign them for another fixed term due to the arrears and to see if they would catch up, or if we had to terminate their tenancy. They would pay for a few weeks, then not pay for a few weeks. By the time that the agent recommended that the lease be terminated and the tenants vacated the property after the Tribunal ordered them to leave, they were behind by a few months. When I filed the claim with the insurer, they said that I had no coverage as the date that their last rental payment was made was outside of the fixed lease period. So a claim of 13 weeks of rental arrears resulted in $0.

The above policy rule is most prevalent for those insurers whose primary insurance customers are those wanting home and contents insurance. The insurer I was with was one of the largest consumer insurers in the country.

Property Damage

Does your policy cover property damage and what constitutes damage? In general, insurers will cover damage if it is deemed “intentional”. It can be a grey area as to what this does cover, so review your policy for more detail on this. Sometimes an insurer may deem the damage “wear and tear”. For example, if the tenants damage a wall by a door handle hitting it, it will likely be deemed wear and tear. The same may apply for damage to blinds and curtains.

Excessive rubbish removal may also not be covered. Recovery of these costs may be made available by the rental bond, but in many cases this will likely only cover part of the cost.

Ask your insurer if they also cover accidental damage to potentially cover the above circumstances.

Items not Covered by Building Insurance

If you also have building insurance, or you have a strata property, some household fixtures may be required to be insured separately via a contents insurance policy taken out by the landlord. These items may include the kitchen and floor coverings. When seeking insurance coverage you will be asked if you wish to take out contents insurance to cover these.

How to Find an Insurer With the Most Suitable Coverage?

Look for an insurance company that specialises in investment properties and landlord insurance. Examples include Terry Scheer and EBM. If your property is managed by a licenced real estate agent, ask them to provide you with a quote with these insurance brokers as they often receive discounts for referring customers to them. Otherwise, give the insurer a call directly to ask if they will provide you with insurance coverage. They may provide you with a discount if you hold multiple investment properties and agree to move all of your policies to them.

How to Minimise Claims?

Ask your agent to let you know when the regular inspections are occurring so you can attend with them. As it is your property, you will take more notice of small damage and deterioration of the property than the property manager is likely to notice. Check if the door stops are damaged or removed and for other items that can minimise wear and tear on the property such as hooks and cords on window coverings. Take a look at the lease before you visit the property to check how many people are listed on it. If it looks like there are more people living there, it’s important that they are also on the lease so that insurance covers them as well. Check for rooms that are locked or garages not accessible. In one of my properties I had a tenant not wanting me to enter the garage and said there was no light and the handle was broken. I took a look and there were 3 beds set up in there.

Keep an eye on your monthly rental statements and if there are arrears, follow up with your agent on how they are managing this. Some agents are better than others with following up on arrears and encouraging the tenant to pay.

If you have any questions regarding financing an investment property, either refinancing an existing property or a new purchase, contact Jennifer Lackersteen on jennifer@jblhomeloans.com.au or 0414670151