When you purchase a property in Australia, you will generally be required to take a Building Insurance if you have a mortgage on the property. This will cover the property for damage to it such as a fire. Even if you don’t have a mortgage on the property, Building Insurance is an essential cost to ensure your property value is covered in unfortunate circumstances. Whilst some cultures consider it bad luck to insure, I strongly suggest that Building Insurance be considered as an exception.
If you are renting out your property as a long-term rental or holiday home, it is also well worth obtaining a Landlord’s Insurance. It is generally inexpensive, from as little as a few hundred dollars a year, but can cover a range of damage to both the building and contents that is not otherwise covered with Buildings Insurance. Generally, Landlord’s Insurance will cover you for things like damage by your tenants or rental default. If you have furnished the property it may also cover damage or theft of the contents, or some of the fittings, such as blinds and carpets.
So if you take a bond from your tenant, as security before they take possession of the property, do you really need Landlord’s Insurance? In many instances the bond may not cover the damage (generally in long-term leases it is one month’s rent, which may not cover replacing carpet in the entire property fro example). More importantly though, Landlord’s Insurance covers other things such as rental default or tenant eviction. Under most insurance policies, if your property has been vacant or rent has not been paid for more than four weeks (which would be covered by the bond), then the policy takes over and will pay all or part of the rent for an agreed period (the length of time depends upon the policy and can vary from 12 weeks to a year).
In some cases, the Landlord’s Insurance may also cover things such as landlord negligence. So if someone is injured or worse as a result of some negligence on your part, then the insurance will cover potential legal claims. It may even cover little things like changing locks and damage to appliances. It is worth shopping around and reading the fine print carefully to compare what is included in different policies before taking one out.
A Landlord’s Insurance is intended to protect you, the landlord, and will generally not cover any contents owned by the tenant. It is up to the tenant to insure their own contents if they wish to do so. Alternatively, you may be able to insure for the contents of tenants under some Landlord’s Insurance policies and then charge your tenants an extra amount for this. You would need to check with the insurance provider to see if this is possible.
Whilst it may seem like just another expense, Landlord’s Insurance really does exist to protect you and your investment. For a small amount of money, it can ensure that the returns on your property are not eaten away by taking on one bad tenant. When you consider how much damage can be done to your valuable property, compared to the cost of taking out a Landlord’s Insurance policy, it certainly a small investment well worth considering.
